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> When Yahoo was Yahoo the “Yahoo” bit (everything that wasn’t the Alibaba shares) was valued as negative dollars for a bit given that the market cap of YHOO wa

> When Yahoo was Yahoo the “Yahoo” bit (everything that wasn’t the Alibaba shares) was valued as negative dollars for a bit given that the market cap of YHOO was less than the value of the Alibaba shares. That's not how it works. First, when a company's price-to-book ratio (the ratio of the company's share price to its book value per share) you can't take semi-arbitrary parts of the company's book value that add up to its market cap and declare the rest to be worth negative value. The situation arises because investors value the overall package less than someone who would like to own the assets outright. Second, static piles of money will always be discounted by the market, particularly when they are mostly illiquid (as the Alibaba stake was). If the Alibaba stake had been separated out into a publicly-traded company by itself it would have traded well below its book value, because what rational investor wants to buy into a static pile of money?

vasco 8y ago
> because what rational investor wants to buy into a static pile of money I'll happily pay you however much you let me buy of a static pile of money for under the dollar amount of the pile, as long as the difference covers transfer fees. I'm pretty sure I wouldn't be the only one either. This to say that when you state "that's not how it works", that's your analysis of the market, and you're free to rationalize how you think the market arrived at a current valuation, but other people will rationalize it differently. That's the whole reason why different investment strategies exist.
- Retric 8y ago
  That’s what bonds are. Which helps with this analysis as risk and time value of money etc reduce the value of a future pile of money. Buying into a stack pile of money you get tomorrow is worth far more than that same pile at some potential point in the future.
- estsauver 8y ago
  Stock isn't money. If you owned 50% of the shares of Google you couldn't easily turn it into 50% of Google's market cap. You might be able to turn it into 45%, but the price right now is the price at the margins to buy ~1 share from someone who is willing to sell one share. If you tried to sell half, you would find radically less people are interested at that price then you would need to sell all of your portfolio.
  - TheOtherHobbes 8y ago
    But you'd also find people would be willing to lend you actual money using your stock as collateral. And if the stock tanks and you default on the loan, it's often the lender that gets screwed. The nominal interest depends entirely on their faith in you and their estimates of future value. There are various standard scams associated with games like this. To keep it simple it's true that stock isn't money. But it's unbelievably easy to turn stock into money without necessarily having to sell it, or without being forced to modify the market rate with a giant stock dump.
    - ikeboy 8y ago
      If you take a loan against a massive amount of stock, the lender will almost certainly hedge it by buying options, and the option seller will hedge by selling stock.
    - harshreality 8y ago
      But you can't turn a large amount of stock into 100% cash through a loan, either. Many banks will give you <<100% of the stock value in cash, but no bank will give you close to 100% of the value[1]. You get to pay interest on the cash loan, too, which makes it worse than a pile of cash. The scams, as far as I can see, relate to the bank overvaluing the collateral or its liquidity, which is rightly the bank's fault, so it's reasonable that they bear the risk and get screwed. Unless it's a pure scam though, the lendee gets screwed too, by losing the collateral (and a lot more of it than necessary, if it's liquidated at short term lows). [1] Unless the bank is playing the bubble game of collecting interest on the loan and not caring if the loan defaults or the underlying asset drops below the outstanding loan amount (could be either because they anticipate a bailout, or they already got fat salaries and bonuses and don't care if bank goes down in flames, but most of that kind of fiduciary irresponsibility is punished by regulations).
- vonmoltke 8y ago
  > I'll happily pay you however much you let me buy of a static pile of money for under the dollar amount of the pile, as long as the difference covers transfer fees. I'm pretty sure I wouldn't be the only one either. Why? What does that gain you? You lose the use of the money you put in to buying the asset. You have no access to the money backing up the asset. That underlying asset might be going up or down in value, but none of that value change is being paid out to you. > This to say that when you state "that's not how it works", that's your analysis of the market, and you're free to rationalize how you think the market arrived at a current valuation, but other people will rationalize it differently. That's the whole reason why different investment strategies exist. Most investment strategies are shit in the long run, particularly those that are rationalized (i.e., superficially reasonable and valid, but actually supported by unconscious or specious reasoning). Discounting the value of an asset you cannot directly purchase and control is not one of them.
- simonh 8y ago
  >I'll happily pay you however much you let me buy of a static pile of money... The money probably has outstanding tax liabilities (the Ali stake does), there may be other outstanding claims or legal restrictions on the use or divestment of the money, you have no say in how the money is used for investment or other purposes and no control over when or how the money is divested if ever. Compare that to just keeping your own money in a savings account over which you have full control. If I want to invest in Ali am I better off buying Ali shares myself, or buying a stake in a big pile of Ali shares I have no control over? It's not even an actively managed fund so you're not even getting that benefit.
code4tee 8y ago
When the bit you chop off is basically a vault full of cash then yes you can easily value what’s left as negitive if the whole company is worth less than the cash in the vault.

vasco 8y ago

> because what rational investor wants to buy into a static pile of money I'll happily pay you however much you let me buy of a static pile of money for under the dollar amount of the pile, as long as the difference covers transfer fees. I'm pretty sure I wouldn't be the only one either. This to say that when you state "that's not how it works", that's your analysis of the market, and you're free to rationalize how you think the market arrived at a current valuation, but other people will rationalize it differently. That's the whole reason why different investment strategies exist.

Retric 8y ago
That’s what bonds are. Which helps with this analysis as risk and time value of money etc reduce the value of a future pile of money. Buying into a stack pile of money you get tomorrow is worth far more than that same pile at some potential point in the future.
estsauver 8y ago
Stock isn't money. If you owned 50% of the shares of Google you couldn't easily turn it into 50% of Google's market cap. You might be able to turn it into 45%, but the price right now is the price at the margins to buy ~1 share from someone who is willing to sell one share. If you tried to sell half, you would find radically less people are interested at that price then you would need to sell all of your portfolio.
- TheOtherHobbes 8y ago
  But you'd also find people would be willing to lend you actual money using your stock as collateral. And if the stock tanks and you default on the loan, it's often the lender that gets screwed. The nominal interest depends entirely on their faith in you and their estimates of future value. There are various standard scams associated with games like this. To keep it simple it's true that stock isn't money. But it's unbelievably easy to turn stock into money without necessarily having to sell it, or without being forced to modify the market rate with a giant stock dump.
  - ikeboy 8y ago
    If you take a loan against a massive amount of stock, the lender will almost certainly hedge it by buying options, and the option seller will hedge by selling stock.
  - harshreality 8y ago
    But you can't turn a large amount of stock into 100% cash through a loan, either. Many banks will give you <<100% of the stock value in cash, but no bank will give you close to 100% of the value[1]. You get to pay interest on the cash loan, too, which makes it worse than a pile of cash. The scams, as far as I can see, relate to the bank overvaluing the collateral or its liquidity, which is rightly the bank's fault, so it's reasonable that they bear the risk and get screwed. Unless it's a pure scam though, the lendee gets screwed too, by losing the collateral (and a lot more of it than necessary, if it's liquidated at short term lows). [1] Unless the bank is playing the bubble game of collecting interest on the loan and not caring if the loan defaults or the underlying asset drops below the outstanding loan amount (could be either because they anticipate a bailout, or they already got fat salaries and bonuses and don't care if bank goes down in flames, but most of that kind of fiduciary irresponsibility is punished by regulations).
vonmoltke 8y ago
> I'll happily pay you however much you let me buy of a static pile of money for under the dollar amount of the pile, as long as the difference covers transfer fees. I'm pretty sure I wouldn't be the only one either. Why? What does that gain you? You lose the use of the money you put in to buying the asset. You have no access to the money backing up the asset. That underlying asset might be going up or down in value, but none of that value change is being paid out to you. > This to say that when you state "that's not how it works", that's your analysis of the market, and you're free to rationalize how you think the market arrived at a current valuation, but other people will rationalize it differently. That's the whole reason why different investment strategies exist. Most investment strategies are shit in the long run, particularly those that are rationalized (i.e., superficially reasonable and valid, but actually supported by unconscious or specious reasoning). Discounting the value of an asset you cannot directly purchase and control is not one of them.
simonh 8y ago
>I'll happily pay you however much you let me buy of a static pile of money... The money probably has outstanding tax liabilities (the Ali stake does), there may be other outstanding claims or legal restrictions on the use or divestment of the money, you have no say in how the money is used for investment or other purposes and no control over when or how the money is divested if ever. Compare that to just keeping your own money in a savings account over which you have full control. If I want to invest in Ali am I better off buying Ali shares myself, or buying a stake in a big pile of Ali shares I have no control over? It's not even an actively managed fund so you're not even getting that benefit.

code4tee 8y ago

When the bit you chop off is basically a vault full of cash then yes you can easily value what’s left as negitive if the whole company is worth less than the cash in the vault.