We no longer live in a world where institutions can determine the future of the company based on its financial data and its potential ROI. As a major in quantitative finance, I of course believe that everything has its price and everything can be measured in currencies. However, we all forget important things while chasing big ROI numbers.
Have you ever heard of the term “goodwill” in accounting? If not, to save time, let me just share Investopedia’s definition: “Goodwill is another category of intangible asset that is more difficult to analyze individually or to value directly. Customer loyalty, brand reputation, and other non-quantifiable assets are considered goodwill. “Why am I bringing it here? Simply because there are some intangible assets that we sometimes forget when evaluating a company and / or defining its future by placing a buy / sell order.
A company is not just a technology, but also people, brand, resources and much more combined. In many cases, ailing companies suffer from poor management, a lack of alignment and a lack of understanding of how to adapt to the new market environment. Hence, we know that PE firms are looking for such “weak” companies to undertake a radical business reorganization in order to later rebrand them as a lucrative investment opportunity.
Startups are always asked about the “purpose”. Why are you building this business? One of the main purposes that has a huge impact on society is job creation. The company creates jobs for people in order to maintain and promote the economy. When an institution decides to buy a certain company short, it doesn’t see any people behind it and they see money in their trading account.
Can’t win the market or can you?
Market participants and democratization of investments
Traditional finance courses and professors always said, “You can’t win the market”. But who and what is this “market”? It consists of many different actors: institutions (investment banks, hedge funds, corporations, etc.), HNWIs, private investors, professional traders and “the crowd”. Investing used to be something that you cannot easily access. It used to be for people who know (or think they know) what they are doing. Nowadays, apps like Robinhood have opened up a whole different world and introduced a different category of people – the “crowd”. Now let’s change our question a little: “You can’t win the market, can you?”
Gen X, Y, Z – market shifts come with generations
We also need to consider the mindsets and key drivers of Generation X and Generation Y. Generation X are the people who value stability and are looking for ways to have better income, including a stable income. While millennials opt for YOLO trades. Millennials are born with technology and easily adapt to all new tools and try out all new apps that appear in the market. Gen Y are the people who are used to communicating online, having a social network, and participating in communities. Millennials and the growing Generation Z also believe that they can make a difference and are ready to fight for it.
Gen Y and Z believe they can make a difference and are ready to fight for it
Inclusion of YOLO dealers as a Covid crisis
Every generation experiences a great deal of injustice and economic failure, and this is no exception now. The Covid crisis was a game changer in the financial industry. It has spurred on the fintech market and taken it to a whole new level by opening up finance, banking, saving and ultimately investing to the masses. Many people have lost their jobs, had great financial difficulties and are stuck at home with their laptops at the same time as everything else is closed due to the pandemic. People were spending more time developing, reading, doing new things and one of them was “investing” in apps like Robinhood, which have a very simple solution to this. Can it be worse if I try? Many have asked themselves that.
People started discussing investment strategies, talking to each other, joining various investment communities, and having fun playing with options and meme stocks. Stories of someone earning crazy xxx% spread on the internet. These stories began to trick newbies into investing (or gambling to be more precise). Anyone who adds $ 100 to $ 1,000 in capital is nothing on an individual level. Imagine how much capital it is when your church has 10 million people. Now imagine how tired these people are from the traditional financial system that hasn’t helped them and how much they want to make fun of it.
Anyone who adds $ 100 to $ 1,000 in capital is nothing on an individual level. Imagine how much capital it is when your church has 10 million people
The most recent case with GameStop and AMC showed that “the masses” can be more powerful than any other institution and that they can set the rules of the game. They are irrational, they are not initially driven by the xx% ROI, they are driven by “f *** the wall street” things. The masses don’t want to be dictated by rules, they want to be the one who dictates them.
I have been asked many times about the possible outcome of such meme trades. I’ve always replied that people are giving the company a chance to survive and change. They might as well do it as they might miss an opportunity like this. Personally, I wanted to believe in the first case and was pleased to hear that GameStop is launching an NFT platform.
Be friends with the crowd and the crowd will help you
You can make the average investor happy by giving them some good return numbers, but you can’t make the crowd happy by doing that. You should be cool, you should make an impact, you should be a company that does something for people where selling is secondary. The crowd values your “goodwill” even if they don’t think in those terms.
People are watching
I believe that digital communities are the ones that are changing the way companies think. You could piss someone off without harming your business first. Now imagine that one person shares how you pissed them off in a community of 10 million people. You get an angry crowd going against you. I think we are moving towards more transparent, more impactful and more sustainable companies with people in mind.