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Let me tighten up my argument a bit. Assume two businesses with an 80% chance of success, where success is worth $1000, and a 20% chance of failure, where fail
by tdees40 11y ago
Let me tighten up my argument a bit. Assume two businesses with an 80% chance of success, where success is worth $1000, and a 20% chance of failure, where failure is worth -$2000. But of course these are stocks, so they can't be worth less than zero, so the expected value of each is $800.
But the expected value of the combined company (where all outcomes are floored at zero) is only $1280 (not $1600), because there's a real chance that one business blows through the profits of the other.
- mikeash 11y agoLooking at it from another perspective, this is exactly why you want to incorporate if you start a business, instead of just going as a sole proprietorship. That way you have two entities (your person and your business) and if one fails (your business goes under) the assets of the other are protected (they can't take your house).
- fredkbloggs 11y agoThis is why Alphabet is stupid. But in Tesla's case, the two businesses are clearly related and may benefit one another so as to compensate for this effect.