Why Unprofitable Companies Are Winning in 2020
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- Опубліковано 26 чер 2024
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The bottom line is the most important part of any functioning business.
Profit after costs, expenses, and taxes.
The money that the founders and investors in companies get to put back into their pockets for the risk and effort they put into a business.
Sounds like business 101 right? And it kind of is.
A business that doesn’t turn a profit is like a freezer that kind make ice, it’s more or less pointless.
And sure there are things like non-profit charity organizations out there but most businesses exist to make money!
So why is it that some of the biggest companies in the world are not turning profits? Why is it that they don’t even plan to?
The rise of so-called zombie companies or companies that have not and have never run at a profit are raising more and more eyebrows in the investing world.
These businesses are getting too big to ignore as by some estimates over 10% of the s&p500 (an index of the largest companies in America), is now made up of these companies that don’t serve the one central goal of being in businesses.
What’s more, is that this issue is not just endemic to a particular industry, dozens of major companies and countless smaller businesses in every sector of the economy from energy, retail, medical, telecommunications, and of course technology are in this profitless boat together.
So what is going on here?
Why would anybody invest in a business that is unprofitable?
What impacts does this apparent misallocation of resources have on the economy?
And finally,
Will the economic fallout of 2020 show these businesses for what they really are?
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1980 Zombies: "Braaaains"
2020 Zombies: "Fuuuunding"
human zombies: braaaaains
robot zombies: fuuuuuding
Mooooonies
2008: CHAAAANGE
hahahahahahahahaaha
"stable form of madness" well.... goes in line with this.
This business model encourages monopolies because small companies will eventually be put out of business and the consumer will be left with these monopolies. In the long term the consumer will pay the price of their profitless expansion
Time to use the Anti Trust law.
Oh wait, the government is in their pocket.
Austrian economic supporter disliked this comment. LoL
@@advancedomega the government simply _is_ the monopolies
pareto distribution at its finest
Which is ironic since the entire point was the opposite. By being able to get money by investors before you turn a profit, you can build a product/service before the big companies who have way deeper pockets do. It lets you get your idea up and running (especially when we talk about service-based companies) before the Apples, Googles or WalMarts of the world come in and do the same thing for 50% cheaper and 50% quicker because of their scale.
What are you talking about? Swindling investors is extremely profitable
Time for new jake tran video
Sad how the founder of a failed company can buy a 750 million dollar house
@@elthomas_ The reason that's the case is because of a little concept called the 'limited liability company'. It isn't how companies always were - it's an artificial invention created by law (albeit not a new one). There was a time when your business going bust could lose you everything, or even put you into debtor's prison. The funny thing is, capitalism took off only after it was created aka after the level of risk was lowered by state decree. And people say capitalism is all about bold entrepreneurs taking huge risk lol...
The problem is that many investors are rich. You can get away with ripping off the poor and middle class, but it's not so easy with the rich.
@@ArawnOfAnnwn limited liability make a lot of sense if you have nothing to do with running a business. Buying into your neighbour's lemonade stand should not cost you your house. It also make sense if you're running a business as a paid director. It is just a job. Make less sense for the founder on the other hand who are running the day to day business.
Random dude: "I drew a drawing of a man in an electric truck"
Investors: "here's twenty million dollars and your own jet."
Entrepreneurs: "So I have this idea..."
Softbank: "Shut up and take my money!"
How is it that every unprofitable company that plans to go public has Softbank written all over it?
What is Softbank?
Just Masayoshi Son. No one else at SoftBank is that crazy.
Facts.
@@grahamturner2640 it's basically this company that started as a phone company in Japan but is now basically a hedge fund.
Well, this isn't the zombie apocalypse we were preparing for...
guys idk red sus
....yet
By saying it. It becomes real
Lol, if you are working for a company that doesn't make a profit or plans for profit, please check your pulse.
@@BowlOfHotDogs
I saw him vent.
This channel inspired me to do economics and finance at University.
It’s runs the planet, good and bad. 😐
Make sure you choose a finance sector that can't be automated yet
@@bryanfeliciano4102 what do you means?
@@abdulqadirhussain7864 we're really close to automating jobs that involved repetitive cognitive functions . So if you choose finance make sure it's a sector an Ai would have a harder time doing.
@@bryanfeliciano4102 true, can you give an example
It is truly an art form how you can condense so much information into such an easy to consume video 👏
Glad you think so!
unfortunatly the information presented is utterly wrong - without understanding investment into revenue growth and writeoffs plz do not short amzn, tsla and the likes!
they first capture marketshare, and have the potential to be vastly profitable in the future - everyone who can think ahead pays the premium on those stocks today, everyone else should ask "do i understand this fully or am i missing something?" but unfortunately says "everyone is dumb but me." ... choose who you wanna be
Very true
@@EconomicsExplained I have always been concerned about the US system of 401k, 403b, etc - where people pay into the stock market on a schedule, regardless of how profitable the market is, which businesses they are investing in (most employees don't even know whether their investments are in large cap or small cap, much less with which investors or actual company shares). It made me think, like 15 years ago, that this will have to result in increases in p/e ratios, as people just buy stock with no question about what they are buying. In such an environment, of course unprofitable companies can get investors. Same with REITs. They are legally mandated to buy real estate as the retirement money flows in, regardless of market conditions or the absurd cap rates on income producing property. Now the REIT strategy has become to buy everything and turn the entire country into tenants. At the same time, we have China buying mega billions in American property (of all sorts), especially real estate, so fast they don't even care what it is they buy any more. We are headed to a collapse. We have to be. So, how does one prepare? I have no idea, because the governmental response could invalidate any sound strategy - as socialism, mass confiscation, wealth taxation, redistribution, etc., could obliterate any strategy.
“The four most expensive words in the English language are, ‘This time it’s different.’”
--Sir John Templeton
Aren‘t those 5 words? 😅
@@Alessandr0- depends if you count contractions as 1 or 2 words.
I thought they were: *"Is that Jeff Bezos?"*
It get considerably more expensive while lobbying for socialism.
This time is different is a good Evans Blue song too.
“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”
- Warren Buffett
Caught you again! You were quoting people on general knowledge!
@@mrtoasteer3561 I wasnt running away from you. 😀
@@QuestionEverythingButWHY I'd like to question that.
@@mrtoasteer3561 questiom me?... do you've a search warrant or something of sort?
@@QuestionEverythingButWHY You're provoking too many thoughts!
Very good overview of this phenomenon! One point you gloss however is that it’s not just the investors of Uber that subsidize that 30% of the cost of each ride. It’s the drivers themselves who shoulder the burden of maintaining the fleet and providing the infrastructure.
One reason to use a cab company for transportation
Drivers are working and making a living so should not complain.
@@bighands69 Except Uber's end goal is to get rid of drivers, and get fleets upon fleets of self-driving vehicles.
Underrated comment. This is a lot more true than even most Uber drivers realise.
@@bighands69 And yet other professions and jobs don't require you to
a) put up your asset for it instead of use the company's assets (the vehicle)
b) get the asset ground down and depreciate in value at an exponential rate due to its usage in the job
c) get paid pennies which doesn't even include the (much) wear and tear you've incurred on the vehicle.
To be fair, the early Uber drivers probably turn a profit even with depreciation involved, since most taxi markets they enter are a closed market with a high price due to barriers to entry, and they don't have many competition among the few other Uber drivers either. Yet once there's an oversupply of drivers? It's no longer profitable.
If most Uber drivers understand how depreciation work, they'd immediately get out right now.
My hippie friend who retired from Wall Street , once said "We don't have Capitalism. We have Corporate Socialism."
Seems about right, even the average Joe can see it
Only companies get to partake in socialism while everyone else is told to “pull ourselves up by the bootstraps”
That happens when the gov. stopped being the referee and start to play in the game.
i heard bernie say a similar thing. i think his was "we have socialism in the US, it's just limited to companies"
@@lajya01 milton friedman was definitely not saying the gov should referee capitalism. the big dream was for free market economics to balance its own self. it never did and everyones been cooking the books since. obv the main people who know this are the investors
The idea of profit is toxic to life.
Softbank : "I am somewhat of a philanthropist myself"
LOL ironic
A philanthropist who thinks that Adam Neumann needs a 60 million private jet even when Weworks is burning loads of money.
@@marvinfok65 and partying right after sacking 5000 employees back then. Well some people are forgetting what happened before 'sanitary outbreak' already...
@@AK-kr3uy
WeWork
WeSack
WeParty
WeForget
WeRepeat
WeNikola
WeWin
YouSuckers
Fundamentally - a business must have an actual path to _sustainable profits._ That path may be on a long time frame, but it must exist nonetheless. That's the difference between a sound investment and a ponzi scheme. The latter does not have a path to sustainable self-sustaining profits. If the only way it can sustain continuing operation is by never ending investment, that's a ponzi scheme.
This is exactly what was the Dot Com Bubble. "Investing" in business that had no actually plausible business plan to a sustainable self-sustaining revenue stream. Everyone was seeking to get a piece of the next Microsoft or Apple. And the bubble companies sounded "cool". Their "greed" to get that piece blinded them to the lack of an actual realistic business model to a self-sustaining revenue stream.
The question is - is what we have now a repeat of that and to what extent?
Even if it is a ponzi scheme, when the FED is the last one holding the bag, you'd have to be a fool to not take advantage of it.
Hysteria is low so i doubt it but some companies
It seems that it is only a matter of when, not if.
Investments are not a ponzi scheme.
The bubble now is EVs & batteries.
Too many "me too" businesses, too little going for them, and WAY too much money thrown at them.
I expect the pop in 1 to 5 years.
I mean the short version right now is because the federal reserve and our government are literally giving them money.
Everyone looking at the truck rolling down hill while the owner is moon waking away with a bag of money.
It seems like most of these companies are following a monopoly or bust strategy.
True. That's kind of a spooky way of thinking of it.
Amazon definitely
Bust it is
You have to if what you're offering just seems innovative but is actually not innovative at all.
@@rolyars Most of them are just offering a faster or easier way to do something that already exists, so yea. But with extremely high overhead and extremely low marginal costs, it's cheaper to lower prices to prevent would be competition than it would be to simply offer a superior product, or the product is so simple it's not clear how to make it better.
Last time I was this early, rolling a cardboard cutout down hill wasn't an investment opportunity.
Light weight gravity powered vehicle the new thing
This is nothing knew mainly because of amazon model. Keep wasting investors money by not turning profits. Sell products cheaper than the competition who don't have a virtuously endless "well" of investor money to play with. The latter company goes out of business then the competitor who hasn't made a profit can jack up the prices and monopolize market. So you don't create anything better you just underhand and wait out the competition.
Yes, I've seen this so many times.
The little reliable businesses that make sense get squashed, bigger isnt always better, just more expensive lol.
Lets not also forget.
Zombie companies tend to be tax efficient, they do not pay tax, a great place to dump losses.
Look at the loan structures they operate on. They may not make any profit , but I bet they pay those loans.
And who originally owned the zombie company? those who hold the loans.
Take a C.E.O. hostage and make them say that into a camera.
The only thing I don't get is how it took folks this long to figure out how to game income tax. It's been around a while; this shouldn't be new. Unless the cost of those loans has only made this viable in the last few decades maybe?
@@FireStormOOO_ In the past they would have been asset stripped. Tactics change over time.
That doesn't make sense. Not having to pay taxes means you don't earn anything either which is less than if you earn something and pay taxes on it. Regardless of how you structure it, you either make profit and pay taxes or don't make profit
Doesn’t that just mean that the companies who collect on the loans pay tax on the loan collections?
0:09 Nice
Nice.
Nice
Niccee.
Nice
So anyway I am starting a solar-powered distributed shared AI workspace for machine learning blockchain fracking startups...
Venture Capital money goes here -> www.patreon.com/EconomicsExplained
0:09 shows you are a Zoomer in disguise.
This video was recommended to me after watching a video about how Multi Level Marketing companies are just pyramid schemes with legal loopholes.
0:10 who else saw that Net Profit was 69,420
YES
_Elon Musk has entered the chat_
Nice
EE: this might very well be one bad egg in a bunch
*Theranos sweats nervously*
Business 101: How to start your own Theranos, Wework or Nikola.
"There are a lot of companies with genuine promise ..." shows the Ares 1-X launch, which was a 400 million USD project to launch a ton of dead weight on an old Shuttle booster. The entire project would be cancelled a few years later.
... that being said, we still love you EE.
I'm glad I was not the only one to notice this.
I thought that was a Spacex rocket.
Nobody:
Economics Explain: what's going on here
wots goin on ere??**
@@EconomicsExplained right !
@@EconomicsExplained It's like music to my ears
Plus, it's not even left a rhetorical question.
BWEKFATHT!!!
Another more simple way of saying what you just said is that we are in the midst of an asset bubble.
That unsure sound he makes when he says "is this a ponzi scheme?" Puts it all in perspective. Zombie companies sure look sketchy.
Today it's not about return ON capital. Today it is about return OF capital.
Ah yes, 300 years after the South Seas Bubble, and we still haven't learned our lesson
Dude I'm getting rich so shut up! xD
Well, we don’t have a modern day Walpole, don’t we?
I have ancestors who lost everything on an early 1800s scheme to dig the Panama canal that never happened. Others who lost every on fen draining projects. Don't bet the farm, guys, really.
When I was this early last time, profit still drove the stock market.
That's why most of these Profitless 'Unicorn' companies are not listed on the stock market
@@raghu7174 Though they plan to, they all are waiting for the IPO to scapegoat the public and make their sweet sweet profit.
@@r_s_p_t1096 I don't think any of these companies have clean enough balance sheets to justify an IPO. Why go for an IPO if they can fool a few venture capitalists and make millions, if not billions of dollars! They'll be answerable to public enlarge if they go for an IPO, which is not in their best interest
@@raghu7174 Dude, didn't you see the video? The IPO is the main thing
This channel is exactly what I needed in my life. It's explaining things about the economy that I knew deep in my heart but couldn't properly understand or explain through a logic
*There's a difference between;*
Reinvesting into R&D like Amazon for a long time
And companies that are fundamentally flawed 🙌🙌🙌🙌
R&D and marketing are the only thing in a company that creates value. Everything else is just a cost.
@@vaibhavgupta20 You mean only R&D. Marketing is also just a cost.
@@vaibhavgupta20 I agree with Pyro, marketing does nothing to add value on it's own.
@@trololobochum And brand value adds value to an economy, how exactly?
@@trololobochum Coca-Cola's marketing has produced incredible value for Coca-Cola shareholders, but has it actually produced value in the economy? Is the market dominance of Coke better than if we had many regional brands of cola products, or if people's beverage choices were more evenly distributed among different soda types, juices, flavored waters, etc.?
good, this channel gives me anxiety, depression and rage. I will subscribe
9:00 lol I thought Nikola is a pretty cleaver way to call Tesla, then I found out it’s actually another electric car company
Clicked as soon as I caught the first whiff of that schweet schweet EE spice.
(And boy he's been getting spicier over the last few months).
PS; Could you please make a video on Blank Check Companies?
We announced that we will in an upcoming video :)
Economics Explained they will always demand more my friend!
I believe Blank Check Companies and SPACs are the same thing
@@EconomicsExplained bad and good effects of UBI without taxes on financial transactions and without high taxes on the rich
big thanks, this is so important to know whats going on and why as it affects everyone in the world, no one else has explained this phenomena, Im very grateful
I am glad you made this video because I have wondered this for a while now.
Last time I was this early I was actually looking forward to 2020
0:09 Economics Explained is secretly a dank memer
"secretly"
Nice.
Nice.
Ah, I see you're a man of culture as well
What's NPAT?
UA-cam ads: 'give me 15 sec...'
Me: no. God no.
These companies: nothing to see here.
I know you have covered it before in other videos. But it would be nice to see more about the impact of how many companies are beholden to shareholders to the point of diving growth against long term success and the potential negative impacts.
Your upload schedule is great
I've been working in Venture Capital for two years now and, while this is a little discussed topic, it will certainly have gigantic impacts on the future of the global economy. Companies, just like Countries, are blindly aiming for rapid growth while not actually creating value. When no value is being created, money only goes from one person's pocket to the another person's pocket. When people realize price is not just a random value, those with the "Assets" in hands (Governments, Investors, Pension Funds, etc) won't be able to sell them and will go broke.
I love how you break everything down. I learn more from here than school.
Love this videos. Really!! They are really informative and entertaining
These videos are more informative than many master's degree level classes I have taken.
The only problem I have with all this is that the founders need to "look successful" to get funding. It really proves how little humans can efficiently take in and actually process.
"This guy looks good, has a nice car, goes dancing? So lets invest in him, not the guy who spends literally so much time on an idea that he doesn't leave the basement."
"Yeah, what a weirdo."
Agreed
They measure success in objective ways but in meaningless ways. Like market share. If you're losing money, with more market share, you're just losing money faster.
its the best and most productive time consuming channel. in just 5 days ,I have watched half of the channel and i am far from being bored.
God bless you man, thank you for sharing this educational content
We'll be seeing more and more of these companies lol 🤣
Investors cannot be so generous in the pandemic economy. A huge number of companies have already closed their doors permanently. The market is being taken over by a few mega-corporations as competition disappears.
Up until the moment that the game stops. It is once more a game of imaginary musical chairs. Chairs created from thin air, leading to no real extra chairs being produced.
Unless the companies have at least an idea of becoming profitable, they are inevitably doomed to fail.
Besides, a market crash is long overdue. The last crash is 12 years ago, 2008.
3-5 trillions pumped into the economy this year alone, with vastly decreased GDP.
@@Miranox2 investors have to be generous because they have the Quantitative Easing money that must be put into action if they hope to make more.
@@DumbledoreMcCracken Yes but they don't need to invest that money in failing businesses, which is what I was talking about.
Who needs actual profits, when you have massive stock prices? And so on, and so on...
Even with Ubers subsidies you can’t make much money. I had a friend that did it as a side gig in Dallas. We sat down with all his mileage, and what he got from Uber. All told after fuel and depreciation he was making about half minimum wage and destroying his car.
Thanks, I've been wondering about this phenomonon for a while. This helped me understand it a bit better.
Even UA-cam itself is barely profitable at best and Google primarily uses it as a way to gather data.
Good video. One thing that I'm struck by is the markets that most of these "Zombie companies" are in. Uber is a great example. The licensing/medallion systems that many places used was it's own deadweight loss. The difference now is where the funding is coming from and going to.
Excellent video! This makes a good reference video to explain to people in layman's terms why the economy is actually bad while it is good according to the stock market.
always keeping it real. love your work
12:16 the kinked hose line near the coupling has triggered my OCD. I can see foresee some fault created in the processing due to this. Please straighten that for the next video !
[Edit] Being unprofitable means paying no or little taxes . So how can we all profit without actually profiting on paper is the name of the game.
I'm a bit confused, wouldn't the Uber example of these unprofitable companies that try to undercut other companies and obtain larger market exposure be what's called predatory pricing? I thought deliberately not seeking a profit was illegal?
Absolutely amazing. Thank you for the video
Operating at a loss is a way to suffocate your less well-funded competition out of existence. Basically, a power-play. That's how I understand this, anyways.
something related to the concept of dumping
It's horrifying that people throw money at businesses that are unprofitable.
Well it depends. If it's a flawed business model in the first place like uber or airbnb
(long term) then yes. If you are looking at disruptive companies without flawed business models like Tesla/Square then no. There is a lot of potential for profits when companies are allowed to grow for quite a while. People need to stop investing in companies where the potential for profits isn't even there.
@@0xszander0 How to avoid companies that don't have potential profit?
@@VeryProPlayerYesSir1122 Try to ask yourself the question. What are the potential risks of this companies business model? If you'd ask that question with Uber it's pretty clear. And honestly. Personally I like to look at the whole picture. Company culture, ceo track record etc.
Internet Troll I‘d say try to imagine the end state of the company. If that state is very dominant and has lots of profit potential then the company makes sense, no matter how far in the future that is, as long as growth is sustained.
Or try to think what this company could do now to make profit if they wanted to and if that would be possible at all.
Also one can differentiate whether the company is loosing money while operating or just investing more in growth than they profit.
Sounds like we need to come to terms and agree that some business models are doing well at certain points and should work on collaborating instead of competing to sustain growth from my point of view. I also wonder where the notion of Ethical Profit will come into consideration given the current globalisation process currently happening.
Lolll the clip with the guys on electric scooters: "it's a reality that we're gonna have to contend with"
8:00 this has always been my problem with non-dividend paying companies. If I'm buying dividend-paying shares off someone who invested earlier, then that's fine - that's just someone selling their for-profit investment. But in companies that aren't paying a dividend, surely I'm just waiting for someone else to pay more than I do? A greater fool, making it a Ponzi scheme
And if the company isn't even making a profit at all, it's even more crazy. What am I "investing" in?
"And if the company isn't even making a profit at all, it's even more crazy. What am I "investing" in?"
In theory, you could be investing in a company that is developing and building out something that is really valuable to another company. In other words, someone will buy the whole company and create a whole greater than the sum of the parts.
For example, UA-cam cost Google several billion and then was losing money for many years. But if you think about it, you can see that Google might be willing to make almost nothing on UA-cam, in order to both gain significant power in the video distribution market while also denying such to, say, Facebook.
Are ya winning son
I like bananas. We should talk some more
No but venture capital firms seem to love that these days.
Very interesting. One question keeps going through my mind: according to what criteria would you want to put rules in place to filter out the bad guys from the good guys (without those rules being detrimental to the economy as a whole)? Stated otherwise: I tend to think that most people will agree this situation is not desirable, but how to fix it?
Recommendation for next subject.
- currency valuation
- how much cost difference can it occur for an eg economy to change from floating to fixed rate.
- factores involved in the valuation process
- role of assets held by forex banks in the same process
- cause of currency devaluation for economies right after dropping out of fixed rate.(Malaysia, Thailand etc)
Superb Video . . . . You are great . . . Thanks Very much for doing these great videos ! ! !
I can see this situation ending in a similar way to the 2008 recession, with the taxpayer being forced to bail out these companies.
Economics are like rain: When you are looking at it you're realising that it's good but when you're studying it you realise that IT'S EVEN BETTER!!!
Great wrk guys thank you
This is amazing and I'm sure this a good information for someone that still believe in investing in businesses that are not profitable
Inevitable consequences of a broken monetary system. Fix the money, fix the world.
Much much easier said than done. Money is power, and people will fight tooth and nail to keep both. And worse of all, the so called maintainers of monetary system are rotten to the core themselves. Look at Deutsche Bank.
@@manthanf1 Fiat money is confidence game that enables the power of banksters. Confidence games work until they don't. Money is chosen by the free market by people picking an asset to store the value of their labour in. No one can force you to use an inferior form of money. Fiat money will go down in history as the greatest fraud ever committed on humanity.
Save the cheerleader, save the world.
The more older I get, the more convinced I get, that no matter the system that is created, it is destined for pretty much the same thing. While it might be possible to "fix" money, I doubt it can happen when humans are part of the equation.
@@rkan2 That's the beauty of bitcoin. No one can control it. The un-corruptible money. To make changes the majority would need to agree.
I think there is a misunderstanding here, investors chose these companies because of the net present value of their shares. Why is Twitter more valuable than the New York Times? Simply because the price of having a share in a future monopoly is greater than of a business making profit nowadays. This is what led Amazon to be of the most valuable company in the stock market.
The hard part is knowing which companies will be profitable in the future.
That's definitely not the rationale of nearly all investors. They just see an upward line and give their money to see their money grow. That's the only intelligence modern investors give into their allocation.
You do give an economic textbook sorta idea that assumes everyone has perfect information and are all rationale, though it seems such assumptions are extremely flawed and misleading nowadays.
@@Requiemrexx exactly, I have yet to invest anything but I have read tons and watched tons of videos and it is clear to me that 99% of people who are investing right now are doing it blindly just following the upward graph trends, it's just gambling........
@@Requiemrexx I also think it makes it easy for unscrupulous dealers to take advantage of the graph followers, they just have to say something good or bad about a company and watch the price go up or down and buy or sell accordingly netting thenseves a nice profit overnight.
@@FlyingFun.Right. But do keep in mind that investing, in all forms, IS gambling. That's why risk is measured, because the outcome is uncertain and you're trying to make the best bets.
Incidentally, this gambling is integral into how the economic system works, as it's the only liquid way to keep your money from degrading over time due to inflation.
And yea, the system blatantly favors those with millions of dollars, which get recognized as "actual" investors and not "retail" investors, alongside access to markets out of 9-5, which is very unfair.
Hi.great clip. Could you link the videos you mentioned in the description please? It would make it simpler than searching.
“Money printer goes brrrr” 😂 - thought they’re just doing QE
This should seem more than familiar to anyone who has learned about any economic bubble, ever.
I’m confused by the claim that about 10% of the companies in the s&p500 being unprofitable since this is a requirement for index inclusion.
He chose his words a little more carefully than that. He said companies that don't have profitability as their central goal. Amazon is technically "profitable" and is listed on the S&P500, but clearly their goal is to minimize profits. I'm pretty sure that's what he meant.
Cash flows are arguably more important than profit. Amazon’s cash flows have been pretty big for a while. They just reinvest in the company so that their overall net profit is low.
Businesses first and foremost exist to make products or provide services.
Profit is what's supposed to ensure the financial sustainability of the operation.
That's socialist thinking. Capitalist thinking is that businesses exist primarily to make a profit.
I don't believe any of these companies are actually profitless, I believe it's just more crafty accounting 😤
I suspect it is a mixture. Amazon was probably crafty accounting to avoid taxation. Nikola pretty much a ponzi scheme.
this is the problem with grand theories and "laws of nature" in economics and social sciences in general. they're just contingent generalizations of unique moments in history.
By recognizing the law, you alter the law.
This kind of investing is the same as simping on Belle Delphine when u think about it.
Yup
nice
i'm guessing based on your comment you're in your 20's... news flash, we never grow up. Learn how to exploit that for yourself.
@@stachowi nope. In my 40s. No cable package of any kind. Just youtube. So too much youtube. Learned about her through the youtube channel Internet Today.
@@DigitalMadrigal touche! i'm 39 so that backfired on me. Back to your original point... yes because the "smart" money simps over these bullshit companies everyone else follows them to slaughter.
If you've been tracking markets like me since 88, you'll see this happens over and over and the regular guy holding the bag pays for it all.
I wish my economics teachers had the ability to economics like this channel does.
At 2:08: '..give credit where credit is due...' nice one.
Watching EE to try and eventually get into the stock market without making a awful decision is a bit like trying to decide which poison I want to ingest this week
Just all in Tesla
If you truly want to learn good investing strategies I would hasten to recommend the series "Investing Like Warren Buffett" by Preston Pysh. It walks you through all the fundamentals and more advanced topics of value investing in step-by-step style videos, introducing one concept at a time. Despite the crazy market conditions, there are still a lot of great companies to invest in as long as you run the numbers.
Learn finance, economics, and maybe accounting. For me I just dollar cost average and stay diverse globally. The market always looks expensive, even in a bear market.
@@CockatooDude value investing is kinda dead though, just invest in innovation.
It's way too early to declare value investing dead. Technological revolutions causing hysteria and extreme valuations is nothing new. at the end of the day the returns are usually dissappointing and value prevails. Maybe "this time is different" but probably not.
I have an idea, increase the capital gains tax for profits from persistently non-profitable companies.
I happen to listen to a big company gave a talk. He said some founders asked him to invest, but the whole business was to keep getting investor until IPO. Their sole purpose is to get IPO and then exit. He said he had to shut those guys down and ask them to come up with a more ethical business proposal.
Excellent info
If there is no plan for profitability within 3 years then don't invest.
Who are you talking to
@@cartanfan-youtube to investors
@Артем yes but what investors are going to read his comment and be like: “Good point, I’m not going to invest in this company now” like I doubt anyone dealing investment would be reading the comment section for advice, let alone not having thought of that before.
Really depends. If you see a clear path to profitability in 10 years investing makes sense. Especially if all this time is used for growth.
Profitability itself isn’t as important as the business model itself. Some business model has potential for profit and the other not.
The one with potential can choose to not make profit and just reinvest the money for growth, creating greater potential for profit in the future. While the flawed business model can still grow indefinitely while actually never having potential for profit.
So it’s not that easy.
@@daniel_960_ My statement was more about companies that can't make profit. Not ones that choose to reinvest for really high growth like Amazon. If the cash being used for growth comes from company operations it's fine but if it's constant outside financing then all they need is one bad decision to spook the market and their share price plummets. Generally not good for normal home investors.
Would it be possible to make a rule so that a company that hasn't turned a profit can't list on the stock market.
Or maybe a rule that companies that haven’t reached profitability after let’s say 5 years are not allowed to do funding rounds or get investments until they again are profitable.
@stockart whiteman You're right, but something has to change in the law because the more of these zombie companies gets started the more unsustainable it is.
Obviously my proposal could equally work for 10 years to reach profitably , and I would say after that you're not really a good business if you can't reach a profit, and deserve to get classed as an opportunist zombie company. And should give way to real business that actually does it right.
Just stop the money printer and all this would end. But nooo, we bailed out the so called "too big to fail" companies in 2008 and after a decade of zero interest rates we have all these zombies on live support. What a surprise. BTW, the money printing is unconstitutional, so no need for new laws. Just enforce the existing ones.
The problem is that we can't distinguish between the two easily. When we invest in passive funds, we invest according to the capitalisation. So what one should do is to have passive indices that sort stocks by profitability/earnings per share/dividends. There are already indices for dividend paying stocks. We just need more of them. Unfortunately financial innovation is pretty slow and also investors are slow researching trends.
Not at all, because an IPO happens when a company has big plans and needs money to get them done, practically no company thats profitable would ever go public since it wouldve had to source all the funding it needed before having the option to go public
Long time listener first time poster...I'm in the military and a huge economics nerd. I love the work that you do. I have a request for a video on the latest Nobel prize laureates and auction theory.
Absolutely amazing explanation of what is happening in a world with endless money printing
Is that why even though Tesla hadn’t been profitable for years, they are evaluated so highly?
last i checked the PE was over 1000 yikes
Dude, Tesla has been profitable for past four quarters in a row. Get your facts straight
Raghu Sajeev Yes, but 4 quarters is only one year of the company’s lifetime. It’s been around for 17. Thus, both what you said AND what I said are facts. You, that Tesla has been profitable for the last 4 quarters straight, and me, that Tesla hadn’t been profitable for years. I’m pro Tesla and love your enthusiasm
@@GCdevine1 You're right that Tesla has been raking losses over the years inorder to fuel its exponential growth. But they always had a roadmap to profitability, they never had to sell their vehicles at discounted prices to grab market share. Tesla stocks skyrocketed this year coz they proved that it can be a profitable company despite all odds, unlike the likes of companies like Uber.
Raghu Sajeev makes sense. Appreciate the clarity
The Market: Biggest economic downturn in decades...
Softbank: Let's pump it up a bit... (queues up MASSIVE call options)
Millennials: Now is a GREAT time to invest these stimulus checks..
Millenials: Buy Hertz, it's going into bankruptcy, what a steal!
Rational investor types: What the F is going on!?
Capitalism is collapsing, that's hwat
Looking the video and Uber ad pops up in the middle.. Good job
Thanks for the video...very informative. The remedy for the "unprofitable companies winning business model" is very simple: no more public bailouts for private companies, ( no stimulus, no quantitative easing, no buying back toxic assets, etc). I wish I could get the someone to buy MY toxic assets!! You'll see company structures and business models change overnight! lol
don't confuse it for "no money printing" mind you - the government is supposed to print money during consumer downturns and delete money during upturns, basically making sure there are always enough jobs for everyone, then reversing it to avoid inflation.