3 ms·
why 15%? It seems to me that it would trend towards 100%, maybe a bit less to account for risk averseness. Not saying you're wrong, but it is counterintuitive
by sandoooo 7y ago
why 15%? It seems to me that it would trend towards 100%, maybe a bit less to account for risk averseness. Not saying you're wrong, but it is counterintuitive.
- WalterBright 7y ago> why 15%? Because that's what you can get by passively investing in other businesses and letting them do the work. For example, if hiring Bob generates a 10% ROI (Return On Investment) it makes no financial sense to hire him. If Bob generates a 20% ROI, it makes sense to hire him. The ROI calculation is why many businesses (like Apple) build up massive cash "hoards" (they aren't really hoards, as the money is invested). They can't find a better investment within the company.
- sandoooo 7y agoAh, I see what you're saying. This suggests a wide availability of alternative, reasonable-risk passive investments with 15% yield, which seems unusually high. What is this investment, usually? Stock buybacks?
- WalterBright 7y agoStocks, bonds, etc. Larger corporations often have a department tasked with managing such investments. If you were considering starting a business, would you consider a business with a projected ROI of 15% and you had to work 24/7 on it, compared with 10% ROI investing in the S&P 500 passively? I.e. don't look at what you'd make running the business. Look at what you'd make relative to passively investing the money instead. That's "opportunity cost".