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Diversification. It's usually imprudent to have 90%+ of your net worth invested in a single three-year-old company, if you have people willing to buy the shares

Diversification. It's usually imprudent to have 90%+ of your net worth invested in a single three-year-old company, if you have people willing to buy the shares from you.

il 15y ago
Especially if you know something they don't.
- byrneseyeview 15y ago
  Well, yes. He could have two good reasons instead of one. But that's not how people normally evaluate this kind of situation. "Why were you going 20 miles per hour over the speed limit?" "As you can see, my wife just went into labor and I'm driving her to the hospital." "Good point. Also, you might be escaping from a bank you just robbed." I mean, S-1's are notorious for how much detail they go into, in terms of all the ways things can go wrong. Groupon's "Risk Factors" section is 13,000 words long. I presume that everyone who thinks they're hiding something has read it. When you read it, what did you notice was missing?
dennisgorelik 15y ago
"Because of his existing wealth, he said, the Groupon IPO windfall won't bring big changes to his life." If he's already wealthy - why would he care about diversification?
- sbov 15y ago
  I read that to imply it was after he sold the $300M, not before - the article claims he already cashed that $300M out. Thus, the extra net worth he would have gotten beyond the $4B would have been meaningless, whereas the $300M got him to the point where the IPO is meaningless. Based upon this, cashing out $300M would be extremely logical. But maybe my reading is incorrect.
- byrneseyeview 15y ago
  If you believe in modern financial theory, diversification is the closest thing to free money available. It would be weird and excessive for him not to diversify. (Someone with Internet access, posting to YC, is probably going to have a lifetime income in the top 1% of the world's population. So keep in mind that most people could ask a similar question of you.)
  - dennisgorelik 15y ago
    Modern financial theory does not take into account the insider's information. If based on his inside knowledge he believes he can make 100%+ in a year, it would be silly to diversify that investment into other stocks with less than 10% yearly return. On the other hand if his inside knowledge is telling him that company is going to file for bankruptcy protection in the next couple of years - it makes sense to sell all his holdings ASAP.
    - byrneseyeview 15y ago
      It does. There's a whole lot of research into how insider information propagates, and what the ideal portfolio strategy is given such information. But it's like any other edge. It can still make sense to diversify. That's empirically true; even Boesky put most of his money into stuff he didn't have an insider edge in. In this case, it all depends on what kind of edge Lefkofsky has, what kind of liquidity discount he's willing to deal with, whether he and his investors have different time preferences, etc. It would be truly odd if the rise of the fastest-growing business in history and the rise of the first fairly liquid pre-IPO market and a massive increase in the US money supply didn't lead to this kind of change in investor and founder behavior.

Diversification. It's usually imprudent to have 90%+ of your net worth invested in a single three-year-old company, if you have people willing to buy the shares from you.

il 15y ago

Especially if you know something they don't.

byrneseyeview 15y ago
Well, yes. He could have two good reasons instead of one. But that's not how people normally evaluate this kind of situation. "Why were you going 20 miles per hour over the speed limit?" "As you can see, my wife just went into labor and I'm driving her to the hospital." "Good point. Also, you might be escaping from a bank you just robbed." I mean, S-1's are notorious for how much detail they go into, in terms of all the ways things can go wrong. Groupon's "Risk Factors" section is 13,000 words long. I presume that everyone who thinks they're hiding something has read it. When you read it, what did you notice was missing?

dennisgorelik 15y ago

"Because of his existing wealth, he said, the Groupon IPO windfall won't bring big changes to his life." If he's already wealthy - why would he care about diversification?

sbov 15y ago
I read that to imply it was after he sold the $300M, not before - the article claims he already cashed that $300M out. Thus, the extra net worth he would have gotten beyond the $4B would have been meaningless, whereas the $300M got him to the point where the IPO is meaningless. Based upon this, cashing out $300M would be extremely logical. But maybe my reading is incorrect.
byrneseyeview 15y ago
If you believe in modern financial theory, diversification is the closest thing to free money available. It would be weird and excessive for him not to diversify. (Someone with Internet access, posting to YC, is probably going to have a lifetime income in the top 1% of the world's population. So keep in mind that most people could ask a similar question of you.)
- dennisgorelik 15y ago
  Modern financial theory does not take into account the insider's information. If based on his inside knowledge he believes he can make 100%+ in a year, it would be silly to diversify that investment into other stocks with less than 10% yearly return. On the other hand if his inside knowledge is telling him that company is going to file for bankruptcy protection in the next couple of years - it makes sense to sell all his holdings ASAP.
  - byrneseyeview 15y ago
    It does. There's a whole lot of research into how insider information propagates, and what the ideal portfolio strategy is given such information. But it's like any other edge. It can still make sense to diversify. That's empirically true; even Boesky put most of his money into stuff he didn't have an insider edge in. In this case, it all depends on what kind of edge Lefkofsky has, what kind of liquidity discount he's willing to deal with, whether he and his investors have different time preferences, etc. It would be truly odd if the rise of the fastest-growing business in history and the rise of the first fairly liquid pre-IPO market and a massive increase in the US money supply didn't lead to this kind of change in investor and founder behavior.