Corporation under sapitalism vs. socialism

After searching the database, there is an interesting fact. Consider the 500 largest U.S. companies in 1957, only seventy-four were still part of the current S&P 500. Ouly a few disappeared in mergers; the rest either shrank or went bust. Note that the S&P 500 almost all located in the U.S.

Why did capitalism destroy them? Is it because economic freedom would let competitions keep companies in check. But why the 74 companies can still around? Did they find a blockbuster product so that they can last that long? That seems odd because you got to do that consistantly, otherwise you would be displaced. That could be an accumulative effect such as too big to fail. That also could be pure luck but luck is not as a single convincing argument.

On surface, capitalism encourages all sorts of possibilities above. But if the social orientation changes from capitalism to socialism, can companies last as long as the social system? The answer is almost certain positive. When a social system doesn't encourage competition, the big guys get even bigger. Bigness has its own problems too: less efficient, less productive, and the like. Thus, bigger ones tend to be mediocre. But it won't fail quickly as its symbolic status. Eventually it becomes staggnant. To find ways to revitalize is not an easy task.

So it is a tale of growth, dynamics, and consistency.

A barbell strategy

There is a so called "barbell" strategy that ensure protections against unpredictable negative events:

If you vulnerable to prediction errors, and if you accept that most "risk measures" are flawed, because of unpredicatibility, then you should have hyperconservative and hyperagreesive (NOTE THE "AND") strategies as you can instead of being mildly agressive or conservative (NOTE TEH "OR"). Instead of putting your money in "medium risk" investments, you need to put a portion, say 85 to 90 percent, in extremely safe instruments, like T-bills --- as safe a class of instruments as you can manage to find on this planet. The remaining 10 to 15 percent you put in extremely speculative bets, as leveraged as possible and as many as you can find. Venture capital successes are from their predicatibility and intelligence but a few hits from many smaller bets.

This way you don't depend on errors of risk management. Or equivalently, you can have a speculative portofolio and insure it against losses of more than 15 percent. The average of these two extremes would be an average risk but you are more exposed to a positive surprises, i.e., surprises that benefit you. This is also called a "convex" combination.

A sick, very sick, business model

Some online store providers have abnormal business models that deserve scrutinies. There is little doubt that online stores have great successful stories. However, no one, especially the store providers would be interested in finding out how many failures. The most questionable is that their upside potential.

Online store provides charge one-time software fee, monthly charges for search engine optimization and marketing supports to stores. The fees range from thousands to hundreds. Marketing techniques such as drop-listing are lectured in their courses. To attract potential store owners, stories such as retired personnel, unexperienced students, layoff workers, who almost never used computers before, had run their online stores from zero income to thousands per month in a period of couple months. Such flamable stories often ignite audience's interests. At last, promotional one-time charge prices would slam down price from 3-digit to 2-digit. Monthly fees remain the same.

Big name online store providers such as Amazon and Ebay don't rely purely on monthly fees but transaction fees (under pressure from free providers, e.g., the Craigslist). It is ambiguous what kind of support can provide if multiple stores have the same catalog. Only one can be successful while the other suffer. So the only outcome is that the suffered ones either change to selling something else or shut down the store. The former one is an error-and-try approach as there must be someone already selling or needs to find advantages such as price and services, which ends up on the owners' own decision. The later one is harmful to store owners and providers.

Such store business is not appropriate to be aggregated. Potential store owners, as said many don't know computer, don't know about this. Uniqueness is the word coming to building a good E-commerce website. Owners pay close attention to what they need (that is true that they don't need to know how to do it). Involvement is crucial. Online store provider business model strips off this important chain out of the process. This is not a sustainable business model.

Subjective probability

There is little doubt that investing is all about expectations. It is also well known that expectation has a lot to do with probability. The expectation of having 90% upside with 10 points and 10% downside with 20 points is 7 points. The probability of 90% is different than tossing a coin to get a tail probability. Why not 80%? It is subjective to everyone's comprehension.

This is subjective probability in investment. How do we make subjective probability closer to the actual probability? Need to get more information and get investors trained. It is a learning process. So far, nothing is more interesting than noticing this fact:

Everyone can have their own subjective probability accessment. Now assuming there is a big pool of investors who have no problem in communicating with each other, they all submit their subjective probabilities and compare who do better. After comparison, they learn various things from the best ones such as how to analyze and evaluate probability and go on with the next rounds. Will they get convergence eventually in terms of subjective probability? This is analogous to learning in a class, at the beginning there are various thinkings but at the end of the class, students become more homegeneous.

But this is not true in the market. Good investors/traders don't have learn from each other freely and completely but just piece by piece. It could be million reasons why a subjective probability has been drawn. But it is necessary to learn as much as we can if opportunities are available.

So read just a few who have been studied completely to get a full picture.