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SiJira
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Posted - 2008.12.17 20:12:00 -
[1]
Edited by: Dark Shikari on 19/11/2007 10:02:44
There is irrational exuberance in the current pattern of investment in the market.
First, we got the flood of small IPOs. This is a good thing; while odds are a number are probably scams, it allows new traders to gain trust and experience running a corporation while providing better-than-normal dividends to investors.
Then, we got larger IPOs. Some were based on prior trust, like Ionia's bond offering. Others were newcomers, like Wylker's PSI. Yet these were snapped up just as quickly as the small IPOs, with little more scrutiny. PSI offered an impossibly high return rate for a beaten-to-death business plan, yet still managed to snap up 60 billion ISK despite this. The stream of endorsements was apparently enough to compensate for a bad business plan based on bad math; investors were so eager to get their promised 15% a month that they ignored the obvious problems with the IPO. And yet they were then surprised when they found out that it was apparently a scam.
Nothing, not prior proof of trust or endorsements should not be able to compensate for a vague or broken business plan. The default choice for investors should be to not invest--investing should be something that happens when the IPO has passed all the checks, not when it seems to be half-decent if you ignore half a dozen problems and pretend everything is just peachy.
This is about PSI, but it is also about all IPOs; I feel that people are being too forgiving. As far as I know, Wylker provided absolutely no ingame proof that he did anything with any of the money as it came in. No auditing, no lockdown votes, no screenshots, no nothing. Yet there was little suspicion! Honestly, to be blunt, at this rate we're going to get pummeled with scam IPOs, given how damn easy it is now. You don't even have to pretend to run a real business! ugh
I'm not sure what exactly needs to change to apply scrutiny more effectively; it seems in the case of PSI, it was strongly damped by the willingness of people to call anyone who attempted to poke holes in the business plan a "troll" and ignore them. It seems as if the instant the first share was sold, everyone assumed it was automatically legit. Scrutiny should not have to be something that has to be asked for; it should be an obligatory, continuous process until the IPO proves itself.
Trashed sig, Shark was here |
SiJira
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Posted - 2008.12.17 20:14:00 -
[2]
you have to consider why you want to invest - the only valid reason is that you want to take the chance that you are helping out people that actually use the isk legitimately and are building their reputation for bigger legitimate projects in the future
if making isk is important then you can do it yourself with less work and less risk
Trashed sig, Shark was here |
Tasko Pal
Heron Corporation
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Posted - 2008.12.17 20:34:00 -
[3]
First, please fix the link in the first post.
 Originally by: SiJira
if making isk is important then you can do it yourself with less work and less risk
No. You can do it with less risk, but not less work.
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Damien Jax
Industrial Research College Ltd
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Posted - 2008.12.17 20:48:00 -
[4]
It's really a matter of people not doing due dilligence and following the crowd like lemmings. There's a good discussion going on the ebank forums (www.eve-bank.net) about some of the things you've mentioned here.
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720
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Posted - 2008.12.17 21:33:00 -
[5]
Ironically I'm on both sides of this equation. I currently have a Bond open which will not include an audit, which is troublesome for many due to the historical high scam potential and yet, at the same time I would love to see some sort of mechanic other than the current system that allows for some sort of trust based lending (as I mentioned in this post) that is dependent on relationships but most importantly doesn't allow for any sort of retribution against scammers.
That scamming is possible, I can live with, it is no different than suicide ganking or all other manner of nefarious activities that makes EVE so unusual but I think you should not get away free and clear. There should be some mechanism for tracking down the character and punishing them.
Perhaps a loan market tied to characters with over X SP. I really don't have any good ideas but it seems like a problem worth working on even if, for now, it is counter to my interests
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Treelox
Amarr
Market Jihadist Revolutionary Party
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Posted - 2008.12.17 22:46:00 -
[6]
hehe yeah SiJira, I went to bump the DS thread last week, and it made me cry that it hadnt been bumped in so long that the 90 day inactivity lock had applied.
I thought about maybe emailing my fravorite mod, to get it unlocked, but figured I would just get ignored.
--
Chribba's LoveQuest 17:00hrs Dec. 20th (Prizes!!)
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cosmoray
Cosmoray Construction
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Posted - 2008.12.17 22:46:00 -
[7]
The slight problem with eve.
Trust based lending is NOT profitable.
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SiJira
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Posted - 2008.12.17 22:51:00 -
[8]
Originally by: Tasko Pal
First, please fix the link in the first post.
Originally by: SiJira
if making isk is important then you can do it yourself with less work and less risk
No. You can do it with less risk, but not less work.
im not one to give out ideas out on the forums because they get swamped and quickly become useless but for a lot less work you can make your own 5 percent a month
that is if you make sure you are investing only in good ipos and not if you invest in everything that looks good after you skim over the thread topic
Originally by: Treelox
hehe yeah SiJira, I went to bump the DS thread last week, and it made me cry that it hadnt been bumped in so long that the 90 day inactivity lock had applied.
I thought about maybe emailing my fravorite mod, to get it unlocked, but figured I would just get ignored.
problem solved
Trashed sig, Shark was here |
Joseph Shephard
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Posted - 2008.12.17 22:55:00 -
[9]
Disclaimer: Seeing as how IÆm new and have no reputation, the argument IÆm about to make is actually against my own interest. But it turns out I find this discussion really interesting and so IÆm going to make it anyway.
Although I have limited experience here, it is also my opinion that investments are being bought too easily at too low of returns. I came to this conclusion after reading through CosmorayÆs stats on ôRaising Capital in 2008ö (sorry, IÆm not sure how to link to threads). Cosomoray has estimated that 50% of unknowns refusing audits have recently ended in scam, but more importantly, more than 10% of IPOs in general were scams with a much greater percentage ending in some kind of failure ôwith capital returned.ö [feel free to correct me on any of this if IÆm mistaken]
This really got me thinking about the reservation interest rate for investing on the MD forums. If we assume 10% of IPOs end in loss of capital and 90% pay off exactly what they promised, you still need an interest rate of 11.1% to have the expectation of breaking even over the long term. If you assume one or more of the banks are riskless investments (which IÆm not saying they are, but for argumentÆs sake) and they pay only 1% per month, you would need a 12.2% return per month to compete with simply putting your ISK in savings.
If you further develop the model so that 10% of IPOs end in scam and 10% fail to meet expectations (where capital is returned but only, say, half of expected returns are delivered) then you require an interest rate of 17.6% to have the expectation of breaking even and 18.8% to compete with a 1% return in a savings account.
If you divide players into the categories of ôunknowns/poor reputationö or ôreputable,ö then clearly you will require higher interest rates than even 18% from the unknowns and significantly less from those who are reputable.
Now, the problem is this: It is possible for a relatively new player to make 18% returns per month on a small capital base (less than, say, 3-5 Billion ISK). However, if scams occur more than 10% of the time, failure occurs more than 10% of the time, or banks pay more than 1% (all of which are conceivably true) then investors should demand even higher than 18% returns, and now weÆre getting to the point where new players and new corporations will shy away.
IÆm forced to hypothesize that, since there is no ability to punish scammers and no real way to recover a scammed investment, it is statistically impossible to invest in unknowns and expect any favorable returns as long as 10% scam and 10% failure are reasonable figures. Having said that, I was lucky enough to receive release a small bond at 15% which I will be fully able to pay off û but I also happen to play a few hours a day.
The equation I used to determine reserve interest rates: reserve interest rate = [(rf)^-1](1 + rb) / (f% + [(rf)^-1]*suc%) where f% is the percentage of investments that end in failure (not scam), suc% is the percentage of investments that end in success, rb is the interest rate on ISK in savings accounts, rf is the return of failed investment opporunities compared to successful (for instance, 1/2 would mean you received your entire principle back but only half of the interest you expected.
Interested in hearing what you all think, seeing as how IÆm pretty new.
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Treelox
Amarr
Market Jihadist Revolutionary Party
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Posted - 2008.12.17 22:56:00 -
[10]
Originally by: SiJira
Originally by: Treelox
hehe yeah SiJira, I went to bump the DS thread last week, and it made me cry that it hadnt been bumped in so long that the 90 day inactivity lock had applied.
I thought about maybe emailing my fravorite mod, to get it unlocked, but figured I would just get ignored.
problem solved
sort of, half the beauty of that thread was 4 pages of discussion, and I dont see most ppl now reading that thread. Instead they will just read your link text.
--
Chribba's LoveQuest 17:00hrs Dec. 20th (Prizes!!)
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SiJira
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Posted - 2008.12.17 23:01:00 -
[11]
Edited by: SiJira on 17/12/2008 23:01:47
Originally by: Treelox
sort of, half the beauty of that thread was 4 pages of discussion, and I dont see most ppl now reading that thread. Instead they will just read your link text.
maybe i can quote every post from that thread then Quote:
[(rf)^-1](1 + rb) / (f% + [(rf)^-1]*suc%)
Trashed sig, Shark was here |
Joseph Shephard
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Posted - 2008.12.17 23:04:00 -
[12]
hehe, yeah, sorry about the equation. But I was about 92% sure that if I didnt put it in there, somebody would question how in the world I had come up with those numbers.
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cosmoray
Cosmoray Construction
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Posted - 2008.12.17 23:13:00 -
[13]
Originally by: Joseph Shephard
stuff.
A lot of investors are using spare capital that can't be used realistically for other activities. Rather than let it sit idle they choose to invest it, and earn a passive monthly income.
Picking winners and losers can be fairly difficult, but has become easier from the last quarter 07 onwards. A lot of experienced players had a lot of opinions and provided good oversight. There was a couple of low sec business failures / scams that now means that no investor will touch that whole area, regardless.
Most experienced investors would choose to invest most of their "spare" capital weighted towards proven names/businesses and banks and have a lower amount tied up in riskier ventures.
Now I would never invest in unknowns without a huge amount of disclosure as it is a loser in the end.
If you are looking to invest be vigilant and DON'T just jump in.
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Tasko Pal
Heron Corporation
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Posted - 2008.12.17 23:49:00 -
[14]
Originally by: SiJira
Originally by: Tasko Pal
First, please fix the link in the first post.
Originally by: SiJira
if making isk is important then you can do it yourself with less work and less risk
No. You can do it with less risk, but not less work.
im not one to give out ideas out on the forums because they get swamped and quickly become useless but for a lot less work you can make your own 5 percent a month
that is if you make sure you are investing only in good ipos and not if you invest in everything that looks good after you skim over the thread topic
That's not what you were saying in your second post. I even quoted the latter part of it. And please fix the link in the first post. It's bad form to make a link several paragraphs long.
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EBANK Ricdic
Eve-Tech Savings n Loans
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Posted - 2008.12.18 00:32:00 -
[15]
Very nice post Joseph.
I think we are starting to build a really good statistical representation of probability of scam/default etc and the information being garnished from those involved will be of huge help as that database is built up.
Another statistic I would see is the chance of default scam with an operation run by multiple entities  To the best of my knowledge none have scammed.
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Kazzac Elentria
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Posted - 2008.12.18 01:50:00 -
[16]
Excellent post Joseph, quite a bit a chew on.
I think one of the more interesting fundamentals that exist in the EVE universe is the inability of punishment outside of reputation. This creates unique situations in which someones reputation can carry an infinite weight towards what percentage of offering they can give.
Best example being Ebank, lowest rate of any investment in the game but they also happen to be one of the most reputable which allows them to offer such a low rate and still retain customers.
I think lately here in the last 2 years, our desire for a second market has pushed the top end interest rates down, especially for up starts and newcomers. And as such we've likely all learned from it. |
Chiefie
Irrational Exuberance
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Posted - 2008.12.18 01:54:00 -
[17]
People are suckered out of their ISK every day. Your concern about this is perplexing. 
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EBANK Ricdic
Eve-Tech Savings n Loans
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Posted - 2008.12.18 02:03:00 -
[18]
Another reason for the rate decline was stated and explained clearly by Anastasia Heron in our private forums. Scam is always the biggest risk. However the second largest risk is failure. We need to encourage those running IPO's and bonds to not over-extend themselves. Also pushing high rates of return on people causes stress or tension in which the venture manager may find themselves overworked which can lead to quitting eve or just thinking 'screw it' and keeping the cash and running.
It's for this reason that I prefer bonds over shares. They have a set maturity point and a set return requirement. The venture manager should choose his return amount to something that:
1) The market will accept and appreciate
2) Is comfortably attainable (not best case scenario)
Doing so should increase the likelihood of a successfully running and completed stock.
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Kazzac Elentria
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Posted - 2008.12.18 03:41:00 -
[19]
Originally by: EBANK Ricdic
Another reason for the rate decline was stated and explained clearly by Anastasia Heron in our private forums*. Scam is always the biggest risk. However the second largest risk is failure. We need to encourage those running IPO's and bonds to not over-extend themselves. Also pushing high rates of return on people causes stress or tension in which the venture manager may find themselves overworked which can lead to quitting eve or just thinking 'screw it' and keeping the cash and running.
It's for this reason that I prefer bonds over shares. They have a set maturity point and a set return requirement. The venture manager should choose his return amount to something that:
1) The market will accept and appreciate
2) Is comfortably attainable (not best case scenario)
Doing so should increase the likelihood of a successfully running and completed stock.
100% agree with the assessment that the next biggest risk to scam (as in walk away cold) is burn out.
A plan can be well thought out, and the business sound. But unless compensation for the manager is in order eventually they will burn out.
One of the only reasons I invested in Cosmoray was that he explicitly stated he would ensure everyone got paid.. including him.
*you know I registered there, now you're actually gonna get me posting there. |
cosmoray
Cosmoray Construction
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Posted - 2008.12.18 03:50:00 -
[20]
Originally by: Kazzac Elentria
Originally by: EBANK Ricdic
Another reason for the rate decline was stated and explained clearly by Anastasia Heron in our private forums*. Scam is always the biggest risk. However the second largest risk is failure. We need to encourage those running IPO's and bonds to not over-extend themselves. Also pushing high rates of return on people causes stress or tension in which the venture manager may find themselves overworked which can lead to quitting eve or just thinking 'screw it' and keeping the cash and running.
It's for this reason that I prefer bonds over shares. They have a set maturity point and a set return requirement. The venture manager should choose his return amount to something that:
1) The market will accept and appreciate
2) Is comfortably attainable (not best case scenario)
Doing so should increase the likelihood of a successfully running and completed stock.
100% agree with the assessment that the next biggest risk to scam (as in walk away cold) is burn out.
A plan can be well thought out, and the business sound. But unless compensation for the manager is in order eventually they will burn out.
One of the only reasons I invested in Cosmoray was that he explicitly stated he would ensure everyone got paid.. including him.
*you know I registered there, now you're actually gonna get me posting there.
yep, I need to buy my maple syrup
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SiJira
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Posted - 2008.12.25 22:59:00 -
[21]
Edited by: SiJira on 25/12/2008 22:59:32
Originally by: Kazzac Elentria
100% agree with the assessment that the next biggest risk to scam (as in walk away cold) is burn out.
A plan can be well thought out, and the business sound. But unless compensation for the manager is in order eventually they will burn out.
One of the only reasons I invested in Cosmoray was that he explicitly stated he would ensure everyone got paid.. including him.
*you know I registered there, now you're actually gonna get me posting there.
burnout is what they say when they dont want to admit they scammed
a real burnout would just return what they can instead of keeping it all
Trashed sig, Shark was here |
Danari
Syncore
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Posted - 2008.12.26 01:38:00 -
[22]
Fail by necro. Reported.
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Hostility Incarnate
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Posted - 2008.12.26 01:55:00 -
[23]
Originally by: Danari
Fail by necro. Reported.
Posting that you've reported the thread is a troll.
Reported. |
Washell Olivaw
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Posted - 2008.12.26 02:25:00 -
[24]
Originally by: Danari
Fail by necro. Reported.
Seven days a necro?
Dang, doctors declare them dead soon these days.
Originally by: Signature
Everybody has a photographic memory, some people just don't have film.
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Khrillian
Minmatar
Sebiestor tribe
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Posted - 2008.12.26 04:18:00 -
[25]
Edited by: Khrillian on 26/12/2008 04:24:40
Originally by: EBANK Ricdic
Another reason for the rate decline was stated and explained clearly by Anastasia Heron in our private forums. Scam is always the biggest risk. However the second largest risk is failure. We need to encourage those running IPO's and bonds to not over-extend themselves. Also pushing high rates of return on people causes stress or tension in which the venture manager may find themselves overworked which can lead to quitting eve or just thinking 'screw it' and keeping the cash and running.
It's for this reason that I prefer bonds over shares. They have a set maturity point and a set return requirement. The venture manager should choose his return amount to something that:
1) The market will accept and appreciate
2) Is comfortably attainable (not best case scenario)
Doing so should increase the likelihood of a successfully running and completed stock.
Isn't failure risk almost negligible compared to scam risk, almost to the point of not being worth consideration? If you have a 1000 ISK bond paying 50 ISK per month (5%) which turns out to be a failure after 10 months and pays full principal but 0 interest for that month...in present value that's a hit of 50/(1.05)^10 = 30.7 ISK, whereas if it's a scam after 10 months and you lose 100%, that's a hit of 1050/(1.05)^10 = 644.6 ISK .
Joe Shepard - how does your model factor in WHEN you expect the scam to occur? Not all scams occur in the first month...if interest is paid for several periods before the scam occurs this influences asset price which your model doesn't seem to account for.
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Joseph Shephard
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Posted - 2008.12.26 04:53:00 -
[26]
Edited by: Joseph Shephard on 26/12/2008 04:54:38
Khrillian, you're right. My model was incredibly simple because it was meant to be instructive of a principle (that interest rates for most bonds/IPOs were unreasonably low) and not to be used to calculate true interest rates. If we wanted to create a more robust formula for desired interest rates, it would not be mathematically difficult, but it would be very difficult to use in practice (how can you really objectively state the risk of failure in month 1, month 2, month 3, etc).
However, I think my assumptions can be easily defended. Since a well planned scam would take place when the scammer would make the most money, there is little reason for them to pay interest for more than a few periods (honestly, there is no reason for them to pay interest at all). However, in my model, a "scammer" is someone who creates the investment opportunity with the sole intention of taking people's money.
There are probably a few select cases that fall neither into scam (requiring intent to steal) and failure (where principal is returned). These would be cases where a good-intentioned person suddenly lost everything and not only could not pay interest, but further lost the principle. I guess this could happen if an expensive BPO was stolen or an investment POS was destroyed etc.
The reason why I think this is not a significant detraction from the model is this: using the data I read from Cosmo's thread, the scam and failure rates in my model are much lower than the historically true rates. Since the instances you speak of (partially paid interest) are strictly worse for the investor than a fully successful investment, so long as -at least- 10% of investments end in scam and -at least- 10% end in "failure," any model that takes into account partially paid interest would claim that even higher interest rates were required. Since my model already shows that currently offered interest rates are very, very low, both models would come to the same conclusion but with varying levels of complexity.
Having said that, if anyone wants to provide me with data (or a link to data) on how and when bonds and IPOs fail (ie, how many scams pay no interest compared to some, what percentage of failures occur in the first month, the first three months, the first six months, etc) I would be more than happy to create something a bit more realistic.
Let me know if you want to know anything else about what I did or why I did it. I love statistical finance. It's actually the reason I play the game.
J. Shepard
Edited: because I experienced a moment of stupidity while typing.
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