8 ms·

// Oversimplified napkin math for fun, stop taking this seriously // > Around 60% of the money promised to the Vision Fund by investors other than SoftBank tak

• josgala 8y ago
  Good point. I think also debt’s effect is the perfect alignment for their “last” stage investing where risk and return are lower.
• loeber 8y ago
  > Softbank could pocket 2.7% of $70B ($1.89B a year) by just investing in an index. This is totally untrue. Volatility in the short term -- one serious year down -- can sink you. No sane actor treats S&P's average rate of return as the risk-free rate.
  • flyinglizard 8y ago
    I was under the impression fund money is typically locked for around 10 years or so.
    • jldugger 8y ago
      Even the 10 year rate of return has variance. The risk-free rate of return for 10 years should pretty much be 10 year TIPS bonds.
  • soared 8y ago
    I don't know more than the basics, my thought was if you pocket $2b/year and invest it, you have $13B+ in 10 years (plus your own $28b you've invested that I didn't include). So $40B to whether a storm every 10 years seems reasonable.
    • DSingularity 8y ago
      I think you are ignoring a lot of factors that come into play when you are managing assets on the scale of 70B$. It is easy to sink 1000$ in a minute into an index fund using Robinhood. It is not as easy when you are talking numbers on this scale.
      • soared 8y ago
        > Oversimplified napkin math for fun:
        • kgwgk 8y ago
          We are having fun!
      • neuromancer2701 8y ago
        99% in SPY, 1% in 80% SPY Put option should cover your downside.
        • estsauver 8y ago
          I think you're going to find the 80% SPY Put option doesn't have liquidity for 700 million$ of options.
  • ThrustVectoring 8y ago
    A serious economic downturn is likely to sink the fund entirely anyhow, so you might as well optimize for the case where that doesn't happen. This is one of the serious principle-agent problems in investing in general - equity holders and management aren't incentivized to preserve value for creditors, so they take more risk than is ideal for the overall capital structure.
    • whatok 8y ago
      Depending on how you define a "serious economic downturn". The one thing funds that invest in private companies has it that they can mark-to-model rather than mark-to-market. If it's not a prolonged downturn, private funds can much more easily ride out downturns than funds that invest in public securities and have to actually mark things in a realistic manner. Given the longer lockups of most PE funds, investors are also along for the ride.
• ericjang 8y ago
  Is there a strong reason as to why a 9.7% annualized return on the S&P is a correct assumption we should make about the future? I feel like in the 21st century, a lot of folks have come to put a lot of faith in the "stocks in the long run" mantra. But any stationary effect in the markets can be arbitraged away. If 9.7% long-term returns were guaranteed, wouldn't everyone just borrow 30-year loans on margin at 5% interest rate and invest it in S&P? Edit: agree with sibling comment. If one loses 27% in the first year and makes 9.7% annually after that, they would be operating at net loss. So even if long-term gains were assured, volatility can still make investing on borrowed money unprofitable.
  • smallgovt 8y ago
    I've asked this question many times in many different formats and have never gotten a satisfactory response that's grounded in fundamentals. I think it ultimately comes down to people trusting history to repeat itself.
    • adrianN 8y ago
      How would an answer based on fundamentals even look like? Nobody can predict the future.
      • smallgovt 8y ago
        We can't predict the future with certainty, but we can certainly build models. I'm basically saying I'd like a somewhat bottoms up approach to modelling the S&P index where the inputs can explain the x% YoY increase in price.
      • JumpCrisscross 8y ago
        > How would an answer based on fundamentals even look like? Start with demographics. Layer on productivity growth and you have a first-order approximation of national productivity. Figure gross margins and from that net margins, as well as average corporate tax rates–boom, you have the economy's profitability. Estimate a pay-out rate and you get a high-level return estimate. It's very approximate, but it's theoretically solid for any closed economic system. (Cf: natural resource inputs are not properly accounted for.)
• ASpring 8y ago
  Aren't all of the 2.7% gains wiped out by inflation?
• spelunker 8y ago
  If you think the S&P consistently returns ~9.7% per year every year, you are mistaken.
  • User23 8y ago
    Pretty close actually. https://www.nerdwallet.com/blog/investing/average-stock-market-return/ https://www.nerdwallet.com/blog/investing/average-stock-mark... Edit: Anyone want to clue me in on what the downvotes are for here?
    • Simon_says 8y ago
      The key is consistently. The S&P 500 returns are wildly variant, and the 9~ % only comes from averaging a century of growth. Whole decades might see a loss.
      • TomVDB 8y ago
        Based on numbers here: https://seekingalpha.com/article/2789035-s-and-p-500-index-returns-by-decade-since-1940 https://seekingalpha.com/article/2789035-s-and-p-500-index-r... 1940-1950: 9.3%/y 1950-1960: 20.0%/y 1960-1970: 7.7%/y 1970-1980: 5.9%/y 1980-1990: 17.2%/y 1990-2000: 18.2%/y 2000-2010: -1.0%/y So only decade with negative growth. Add in the depression and you'll probably see a bunch more...
        • fujimotos 8y ago
          You need to consider inflation. In 1970, the inflation rate was 7-8%/y on average, so the "growth" these numbers imply did not exist in reality.
    • spelunker 8y ago
      From that article: "While 10% might be the average, the returns in any given year are far from average. In fact, between 1926 and 2014, returns were in that “average” band of 8% to 12% only six times." So if you are investing on borrowed money with a guaranteed payout of 7% a year, that is not good for you.
• r2d2-c3po 8y ago
  'very little risk' - I think standard deviation of return on S&P is something like 15%-20%...I wouldn't define a strategy with a buffer of 2.7% very little risk when the standard deviation is that high...
  • User23 8y ago
    Variance is not risk. https://www.ncbi.nlm.nih.gov/pubmed/18554271 https://www.ncbi.nlm.nih.gov/pubmed/18554271
    • tempestn 8y ago
      No, but variance causes risk when you're borrowing to invest and need a certain level of return to continue servicing that debt.
  • soared 8y ago
    Pasted from another comment: I don't know more than the basics, my thought was if you pocket $2b/year and invest it, you have $13B+ in 10 years (plus your own $28b you've invested that I didn't include). So $40B to whether a storm every 10 years seems reasonable.
• kgwgk 8y ago
  If you had started such a scheme in 1999 or 2000 you would be bankrupt by now.
  • smileysteve 8y ago
    Not if you invested in an adapting basket of stocks (ie, an Index like the S&P 500) used dividends (2% to create a cash cushion) and had access to 0-2% short term debt (ie the Fed bank rate) during every downturn.
    • kgwgk 8y ago
      I was talking about taking $100 (at 01/01/99 or 01/01/00), investing them in the S&P500 (with dividends reinvested), and paying out $7 every Dec 31. You would run out of money eventually. Of course if you add cheap additional leverage at certain moments and time the market successfully you can do better. But that’s not the original proposal.
• onetimemanytime 8y ago
  As others said, if 9.7% was guaranteed enough, who would lend Softbank at 7%? Banks aren't that stupid, they'd buy S&P (feedback loop) Even 7% is an extremely good return rate. Softbank does these things because they have access to a lot of easy money.