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Why should GM invest in new cars as opposed to returning capital to investors who can perhaps allocate it more efficiently? Why should I believe they can do a b
by andrewvc 9y ago
Why should GM invest in new cars as opposed to returning capital to investors who can perhaps allocate it more efficiently? Why should I believe they can do a better job than anyone else?
This is a long-standing debate over who should allocate capital. I don't think there's one exact answer. Clearly some companies, like AOL were terrible at reinvesting money, they tried and tried but wound up blowing tons of cash on worthless companies.
Other companies, like say Facebook were able to make smart investments like buying Instagram.
Clearly investors price stock based on whether the company can make smart investments in its own future, which is why AOL nosedived and Facebook rose. The market isn't always right but I'm not convinced that an alternative would be better
- mattmanser 9y agoPretty much the obvious answer, because the company died? All you're doing is making Ha-Joon Chang's point for him! Having not personally read "23 Things They Don't Tell You About Capitalism", I assume the argument is that companies should grow, not chase investor returns. Thus they contribute to the society and the eco-system of suppliers and employees they support. Investors don't depend on them, they can just move their capital elsewhere. One might say that it's called "investing", not "extracting". If you want to move your capital elsewhere, because you think you can get better growth elsewhere, fab! That's capitalism at work and easy to do, sell your shares. Which reminds me of all the films in the 80s about the company raiders (e.g. Pretty Woman) being bought and broken up, the pieces were worth more than the whole? Destroying companies for short-term profit. I have no idea whether it's overall a net loss for an economy, but it destroys more than just the one company.