But again you don’t have to go outside of mainstream microeconomics to find explanations for this. Liquidity premium is one (relatively mundane) explanation, and I suspect principle-agent problem again applies here, perhaps because it’s easier (less costly) for a shareholder to monitor one big company for misalignment, and for the company to institute governance measures to try to ensure alignment, than the equivalent for n smaller companies.
I would expect a liquidity premium to exist but I’d expect it to be much smaller than the size of opportunity I’m seeing—why do you expect to see one so large?
I don’t think the principal-agent problem explains anything here because large publicly traded corporations frequently have governance, financial structures, and operations that aren’t intelligible at all to casual investors. For example, I’ve taken courses in finance, accounting, and economics, and worked in financial services, and I have no idea how to evaluate Markopolos’s criticisms of GE, & compare this with their financial statements, because the latter are so vague. (Do you?) Nor was there a trusted intermediary whose evaluation methods I understood. (Can you recommend one?) In practice when I did own stocks I was relying on correlation with other investors—the government would try not to let us all fail at once—rather than any ability to meaningfully exercise oversight over centralized management.
The parenthetical questions are meant seriously, they’re not just rhetorical flourishes.
Just as a matter of principle, now that 3 years have passed, could I ask if your laundromat entrepreneur friend did in fact manage to make 10-50 times purchase price by repackaging the collection of privately owned laundromats?
When I first read this essay that struck me more as optimistic bluster than a realistic outcome, but it would be very interesting (and a helpful update!) to know what the outcome actually was.
I would expect a liquidity premium to exist but I’d expect it to be much smaller than the size of opportunity I’m seeing—why do you expect to see one so large?
I don’t think the principal-agent problem explains anything here because large publicly traded corporations frequently have governance, financial structures, and operations that aren’t intelligible at all to casual investors. For example, I’ve taken courses in finance, accounting, and economics, and worked in financial services, and I have no idea how to evaluate Markopolos’s criticisms of GE, & compare this with their financial statements, because the latter are so vague. (Do you?) Nor was there a trusted intermediary whose evaluation methods I understood. (Can you recommend one?) In practice when I did own stocks I was relying on correlation with other investors—the government would try not to let us all fail at once—rather than any ability to meaningfully exercise oversight over centralized management.
The parenthetical questions are meant seriously, they’re not just rhetorical flourishes.
Just as a matter of principle, now that 3 years have passed, could I ask if your laundromat entrepreneur friend did in fact manage to make 10-50 times purchase price by repackaging the collection of privately owned laundromats?
When I first read this essay that struck me more as optimistic bluster than a realistic outcome, but it would be very interesting (and a helpful update!) to know what the outcome actually was.