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I can't imagine a serious investor that doesn't consider oil price volatility when deciding whether or not to invest in an airplane company. You seem to be assu

I can't imagine a serious investor that doesn't consider oil price volatility when deciding whether or not to invest in an airplane company. You seem to be assuming that all of the investors are abjectly incompetent.

rlucas 11y ago
I think you're right that it would be considered, but from inside the VC world, I can also say it would be very very strange (to the point of almost unthinkable) for a fund to make a meaningful hedge against a particular portfolio company's commodities exposure. It's just not done, at least if you're running other people's money. You can think of lots of reasons why, but it mainly boils down to this: VCs are hired to make bets within an asset class (startups) and not outside that asset class. Institutional investors (upstream of VCs) have other managers to do commodities etc. Also, at least in theory, the market price of oil takes all info into account. If the VCs could really predict the price of oil in 3-5 years, they should probably be trading that alpha instead of investing in VC.
- shawn-furyan 11y ago
  I'm not talking about hedging (like buying call options). I'm saying that oil price would be expected to be a potentially large part of the risk profile of the business, so it doesn't cut muster to just assume that the price of oil won't go up and cut a check. A competent investor will analyze the impact of common risks for the type of business in question, and make a determination as to whether the investment makes sense in light of the risks. That doesn't mean that the investment isn't expected to be hurt (or wiped out completely) should the price of oil rise, it just means that a competent investor would have looked at that possibility and decided that the investment was still worthwhile. The comment I was responding to IMO assumed flippancy on the part of investors and implied that they would be surprised by an increase in oil. That's absurd.

rlucas 11y ago

I think you're right that it would be considered, but from inside the VC world, I can also say it would be very very strange (to the point of almost unthinkable) for a fund to make a meaningful hedge against a particular portfolio company's commodities exposure. It's just not done, at least if you're running other people's money. You can think of lots of reasons why, but it mainly boils down to this: VCs are hired to make bets within an asset class (startups) and not outside that asset class. Institutional investors (upstream of VCs) have other managers to do commodities etc. Also, at least in theory, the market price of oil takes all info into account. If the VCs could really predict the price of oil in 3-5 years, they should probably be trading that alpha instead of investing in VC.

shawn-furyan 11y ago
I'm not talking about hedging (like buying call options). I'm saying that oil price would be expected to be a potentially large part of the risk profile of the business, so it doesn't cut muster to just assume that the price of oil won't go up and cut a check. A competent investor will analyze the impact of common risks for the type of business in question, and make a determination as to whether the investment makes sense in light of the risks. That doesn't mean that the investment isn't expected to be hurt (or wiped out completely) should the price of oil rise, it just means that a competent investor would have looked at that possibility and decided that the investment was still worthwhile. The comment I was responding to IMO assumed flippancy on the part of investors and implied that they would be surprised by an increase in oil. That's absurd.