4 ms·

I can't find the story, but several years ago, an NBA player bought a bunch of fast food franchises, and there was collective head-scratching about why he'd do

I can't find the story, but several years ago, an NBA player bought a bunch of fast food franchises, and there was collective head-scratching about why he'd do that. Matthew Yglesias pointed out that it was brilliant: the value of the franchises was that they were illiquid, so that he had a backstop against overspending or family members asking for money. About that last point: for those of us who come from middle class backgrounds, it's easy to think "just be reasonable about what you give people". It's a much harder proposition if your entire family has been struggling your entire life--especially if they made sacrifices for your dream (I think John Wall's mom once let the lights get cut off to pay for something basketball related for him).

petecooper 8y ago
Junior Bridgeman, most likely: https://www.themaven.net/blackwealthchannel/investing/how-a-former-nba-player-turned-350-000-into-400-million-FyRtXUpz5E6XFmVi6NhedA/ https://www.themaven.net/blackwealthchannel/investing/how-a-...
- hyperpape 8y ago
  I found it. It was Caron Butler. http://www.slate.com/blogs/moneybox/2012/01/30/why_burger_king_franchises_are_a_smart_investment_for_caron_butler.html http://www.slate.com/blogs/moneybox/2012/01/30/why_burger_ki... Bridgeman's story is really impressive, but is the opposite of the one Yglesias was proposing about Butler.
dalbasal 8y ago
On that last point... an analogy When the microfinance exuberance started dying back about 5 years ago, I heard the following interpretation of micro-credit: Poor rural people need credit because they can't save. They can't save because they owe their neighbours a moral debt. Jennifer really needs $50 to pay her kid's dentist bill. She looked after your grandmother, when she was sick and you were away. You owe her (and love her, you're friends). If you have $50 saved, you will get requests that cannot be refused. Everyone is broke and everyone owes eachother favours. Debt is the only way of getting a lump sum. The critic concluded that saving with a (big) negative interest rate is a bitter pill, but better than nothing. Fast food franchises sound like a great idea, if they aren't too failure prone. You lock up illiquid assets. You can give family members jobs, if necessary/appropriate. The bad idea side effects of this is that businesses can potentially lose money as well as value. The spanner in any such system will always be debt. You can lock up all your assets but if you have assets to your name, you can get credit and spend those assets regardless.
- hyperpape 8y ago
  This is a great point, and it also fits with how a lot of "tribal" societies work/worked. You never accumulate wealth, but, for instance, if you have a large yam harvest, you throw a feast for the entire community.
beat 8y ago
That reminds me of the basic investing advice by a friend of mine who is a $100M fund manager. He says there are three factors to any investment - risk, returns, and liquidity. Fix one of these three. If you want low risk, you must sacrifice either high returns, or high liquidity. So most good investments (relatively low risk and high returns) have poor liquidity - it can be slow and difficult to convert the invested capital back into cash. Buying fast food franchises is a good example. They're reliable cash cows, but hard to sell. The ultimate returns come from low liquidity and high risk. That's the world of venture capital. Without the possibility of 100x returns, it's absolutely stupid to invest in new businesses with little likelihood of survival. Money tied up in preferred stock is effectively illiquid and can be completely lost (hence the term "liquidity event"). And that can and should take years.
foobaw 8y ago
I know Shaq also has a bunch of Five Guys'. Not sure if it's the same reason.

petecooper 8y ago

Junior Bridgeman, most likely: https://www.themaven.net/blackwealthchannel/investing/how-a-former-nba-player-turned-350-000-into-400-million-FyRtXUpz5E6XFmVi6NhedA/ https://www.themaven.net/blackwealthchannel/investing/how-a-...

hyperpape 8y ago
I found it. It was Caron Butler. http://www.slate.com/blogs/moneybox/2012/01/30/why_burger_king_franchises_are_a_smart_investment_for_caron_butler.html http://www.slate.com/blogs/moneybox/2012/01/30/why_burger_ki... Bridgeman's story is really impressive, but is the opposite of the one Yglesias was proposing about Butler.

dalbasal 8y ago

On that last point... an analogy When the microfinance exuberance started dying back about 5 years ago, I heard the following interpretation of micro-credit: Poor rural people need credit because they can't save. They can't save because they owe their neighbours a moral debt. Jennifer really needs $50 to pay her kid's dentist bill. She looked after your grandmother, when she was sick and you were away. You owe her (and love her, you're friends). If you have $50 saved, you will get requests that cannot be refused. Everyone is broke and everyone owes eachother favours. Debt is the only way of getting a lump sum. The critic concluded that saving with a (big) negative interest rate is a bitter pill, but better than nothing. Fast food franchises sound like a great idea, if they aren't too failure prone. You lock up illiquid assets. You can give family members jobs, if necessary/appropriate. The bad idea side effects of this is that businesses can potentially lose money as well as value. The spanner in any such system will always be debt. You can lock up all your assets but if you have assets to your name, you can get credit and spend those assets regardless.

hyperpape 8y ago
This is a great point, and it also fits with how a lot of "tribal" societies work/worked. You never accumulate wealth, but, for instance, if you have a large yam harvest, you throw a feast for the entire community.

beat 8y ago

That reminds me of the basic investing advice by a friend of mine who is a $100M fund manager. He says there are three factors to any investment - risk, returns, and liquidity. Fix one of these three. If you want low risk, you must sacrifice either high returns, or high liquidity. So most good investments (relatively low risk and high returns) have poor liquidity - it can be slow and difficult to convert the invested capital back into cash. Buying fast food franchises is a good example. They're reliable cash cows, but hard to sell. The ultimate returns come from low liquidity and high risk. That's the world of venture capital. Without the possibility of 100x returns, it's absolutely stupid to invest in new businesses with little likelihood of survival. Money tied up in preferred stock is effectively illiquid and can be completely lost (hence the term "liquidity event"). And that can and should take years.

foobaw 8y ago

I know Shaq also has a bunch of Five Guys'. Not sure if it's the same reason.