If Facebook had been around for several centuries, here’s what some famous updates might have looked like. If Ben Franklin ever said “Booyah.”
Oh yeah, and here’s Abe Lincoln’s original Facebook page.
If Facebook had been around for several centuries, here’s what some famous updates might have looked like. If Ben Franklin ever said “Booyah.”
Oh yeah, and here’s Abe Lincoln’s original Facebook page.
6 comments:
When facebook started about 6 years ago, many critiques (yep some high worth silicon investors) said that it looked like a malinvestment for anyone to invest in that start-up (therefore it is a venture to be avoided putting money into it) mainly for 2 reasons. First Bebo and MySpace were dominant by then and a young/infant company that is going to compete against such dominant incumbents would be very hard (risk - too high). Second, most tech investors in the valley view social networking as a fad, therefore, people will quickly rush to use it and then when the next new fad comes along, they will all quickly leave facebook, bebo, myspace, etc,... and rush to adopt the latest fad, therefore, investment in fad software applications must be a malinvestment.
Look at what's happening now? Facebook is the dominant social networking site that exists today. It is slowly killing MySpace and other social networking that used to be dominant.
Facebook hasn't made a profit yet, but it is projected that they will in the next year or so, because their placement advertising is growing exponentially. Hehe, the early investors (the risk-takers) will be laughing all the way to the bank when facebook is going IPO (it is rumoured that they will at some stage) and investors who applied von Mises malinvestment principle, will surely regret their un reluctant to invest and miss out on the upcoming IPO pay day.
Investment is about taking risks and there is no such thing as misallocation of resources. Businesses are supposed to rise and fall in capitalist system.
The Austrian concept of malinvestment is where artificially low interest rates result in people making poor investments in capital goods, whereas if the interest rates hadn't been so low, it is unlikely that people would have considered these malinvestments worthwhile.
I.e, if interest rates are 1% (as a result of silly central banks etc), a giant mall, or large suburban development may seem a worthwhile investment. Instead, if rates were higher (perhaps 10% or whatever, I have no idea what interest rates may be without central bank intervention), those investments may no longer be worthwhile.
The concept of malinvestment, in the context of the Austrian business cycle theorem isn't really applicable to an investment that is generally considered risky, rather it is about interest rates* encouraging investments that would otherwise not be so appealing.
*it can be looked at in terms of the 'money' supply, but interest rates seem to make a bit more sense.
"When facebook started about 6 years ago, many critiques (yep some high worth silicon investors) said that it looked like a malinvestment for anyone to invest in that start-up (therefore it is a venture to be avoided putting money into it) ... Look at what's happening now? Facebook is the dominant social networking site that exists today."
Falafulu Fisi, 6 years ago Facebook WOULD have been a very high risk investment; there were hundreds of similar social networking startups and all could almost equally likely have risen to the top, but because success in social networking is heavily predicated on network effects most were destined to fail, and ALL of them were equally risky investments and only one or two would've risen to the top. Only those with a crystal ball could've known Facebook would've been the one to succeed and that the others would fail ... many people invested in the other startups and those failed. Facebook WAS a high risk investment, and the advice to avoid investing in it remains the perfectly correct advice to have given --- for everyone who said 'invest in Facebook' there was someone who said 'invest in StartupXYZThatWillFail' High risk, high returns, low risk, low returns - anyone giving solid investment advice to someone risk-averse would have been very wise not to have invested in FB. 20/20 hindsight is trivial, but useless, it's uninteresting to investors, since we don't have time machines to go back and tell ourselves what we should've invested in. The early FB investors may laugh all the way to the bank now, but they also put up with years correctly stressing and getting grey hairs over whether or not they made the right choice.
- David
Note I am not the same David as the first 'David' comment above.
- David
David and David (David-Square). I am arguing on the Austrian definition of malinvestment, i.e., the misallocation of resources (which I assume that they mean misallocation of any resources, i.e., both financial & non-financial).
You hardly know in advance that an investment in a project/production-process is malinvestment unless you produced the product (starting that business) and put it out there to the market. If it is received well by the market (may be slow to start with but slowly being taken off) over a period of time, then that is not malinvestment.
If that specific product or the start-up business is not received well in the market, therefore it went bust (unable to capture a reasonable share of the market, and it is not justify to keep producing that product because it is uneconomic or not justify keep running that start-up company because it looks that like that it is not going to break even after a number of years in operation), then it is malinvestment. It should be called malinvestment only after the fact, not prior to the investment decision is being made (i.e., pouring of financial resources into the production of certain products or funding some start-ups). If we can only determine malinvestment after the fact (has taken place), then it isn't malinvestment is it?
David, I am confused about your description The Austrian concept of malinvestment is where artificially low interest rates result in people making poor investments in capital goods?
Well, how can you determine that in advance? Do you expect people & investors to be psychics to see the future or perhaps they use time machine to travel to the future and check out if their investment decisions they made in a time-instant in the past was a mistake?
You cannot really tell in advance, can you? If you can't tell in advance if your decision to invest was right or wrong (i.e., malinvestment), then it is not malinvestment, because the nature of not knowing the future whether the investment is going to be a success or not, is intrinsic to investment decision process. That is the nature of the beast. You're betting against the future whether it's going to take off or not.
@Falufulu Fisi: You misunderstand malinvestment. "Malinvestment is always the result of the inability of human beings to foresee future conditions correctly. However, such human errors and the resulting malinvestments are most frequently compounded by the illusions created by undetected inflation (q.v.) or credit expansion (q.v.). From the viewpoint of attaining maximum potential consumer satisfaction, every political intervention, other than that needed for the preservation of the market society, must lead to malinvestment."
Malinvestment is not just bad investments. They are are investments that would not have happened without the artificial credit creation of the banks. It is this creation of credit out of thin air that causes a whole rash of similarly bad investments that inflate each other in the boom, and feed upon each other in the bust.
For example, the houses whose prices rise in the boom only because the injection of all this "counterfeit capital" has caused a bubble. Yet when the tide goes out and debts are called in and the bust begins to happen, it's apparent that the value was never there, that it was all just a bubble, and the optimism across that whole class of investment was illusory.
You can see the net result of this in housing subdivisions across the States, and in holes in the ground from Queenstown to Ponsonby to Orewa.
Or the businesses at the early stage of the capital structure who have expanded on the back of all this counterfeit capital, and whose share prices are going through the roof because of projected profits.
Yet as time progresses, these businesses begin to find that everyone else is experiencing the same artificial boom, hiring the same factors of production as they are (bidding up the prices of everything they're buying) and lowering the prices they can charge once projects are finished.
The result is both a bust, and a rash of unfinished projects--unfinished because the resources didn't ever exist to finish all the projects that were started only because of the injection of all that counterfeit capital, and because the businesses themselves can't survive once interest rates begin to rise and their real costs become apparent.
You could see all this happening during the Dot.Com boom and bust.
If you want to read more about how govt's meddling with interest rates effects Time Preference and causes Boom and Bust, read Gene Callahan's great illustration of the process here.
And if you want charts with that, complete with moving parts that explain why it's whole **classes** of investment that are affected by the injection of credit created out of thin air, then check out Roger Garrison’s excellent Powerpoint presentation.
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