ScottHall Posted February 24, 2017 Share Posted February 24, 2017 What if the Technological Singularity is leading to a Financial Singularity as well? It has long been assumed that companies cannot grow in excess of their cost of capital forever, and this makes sense or else that company would soon own the entire world. But there's also never been a time in history when we've seen $100 billion businesses grow sales at 20% per year like clockwork, and we've certainly seen that happen now. New shit happens all the time; just because our mental models of the world don't permit something to happen does not mean it's impossible. Economies are made up. The screen you're reading this on exists because we've all agreed to work together to make it exist; it took coordination of effort on a massive scale to make just about everything you see in your home on a day-to-day basis exist. And all because we believe in the intrinsic value of green cotton as a means of exchange. There's no natural law that says this has to happen; the concept of currency at all is entirely intangible. In a sense the world only works because we all collectively agree not to look under the hood and freak out about how fucking insane this all is. Since economics is essentially an applied form of psychology, and because people are predictable, but not too predictable... the concept that there are iron laws of finance seems incredibly stupid to me. So if Amazon can grow at 27% a year to hit $136 BILLION of revenue, I don't really think it's impossible for g > WACC until it totally collapses belief in the economy. How much of Amazon's valuation is the market giving it credit for dominating the retail market and how much of it is Wall Street realizing that Jeff Bezos is a fucking ruthless serial monopolist who will grow in excess of his cost of capital for close to forever? Or like Liberty was saying the other day that Facebook could become, effectively, a global dictator. Or Google's seemingly-unbreakable grip on search force businesses to spend a bigger and bigger share of the economic pie on their advertising each year? There are no capital constraints for these businesses. There are fewer and fewer capacity constraints with each passing year. That's what's allowed Amazon to get to where it is in the first place. Why can't we take that to the logical extreme? That these monopolist businesses, and the other handful like them, in a world without many of the boundaries it used to have, could quite literally consume the world and end up breaking the economy. I hate to say it, but I think it's more likely than not. And you can bet that I'm positioning my portfolio accordingly. It is important to always remember... All becomes One, when g > WACC. Link to comment Share on other sites More sharing options...
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