Can employee share award work?

Some companies offer their employees with share award, such as Tim Cook has been awarded millions of dollar via Apple’s share award programme. Such share award programme aims to encourage the employees to work for the best interests of the shareholders. Some people argue that share awarding programme will make executives make short term benefit based decisions rather than long term shareholders’ best interests; however, as we can see nowadays, shareholders and boardrooms are way smarter than this, they offer conditional share options instead of shares in their share awarding programmes, so executives have to make decisions based on their options’ executable dates, thus no longer making short sighted decisions.

However, even if executives who are offered share awarding programmes, does share awarding programmes work for the best interests of the companies? Yes, executives are offered share awarding programmes which make them have more incentives to work harder; however, ordinary employees are not offered these awarding programmes, and because there are so many ordinary employees, their efforts are likely to contribute more to the companies’ values. In addition, even offering these ordinary employees share awarding, it will not make too much when it is a large company having so many ordinary workers, as each individual ordinary employee is only offer a very limited number of shares/options. Even companies can offer their ordinary employees very attractive share awarding programmes, companies have to cooperate with other companies, and other companies may not be so interested in working for your best interests.

Yes, share awarding programmes can improve employees’ incentives to work for their shareholders; however, it has its limitations and does not solve all programmes.

Does a government have the incentive to default on its debts?

The 10 year US bonds and the 10 year UK gilts are two assets which are considered to be risk free, their yields have been widely used as risk free rates. These two government bonds are considered as risk free assets because the two governments both have long and good history of borrowing and the two economies are large and important in the world economy. Meanwhile, other government bonds are not considered as risk free, some governments have very volatile bond yields in the global market, such as the Turkish government bond yield, the Argentina government bond yield. However, does a government have voluntary incentive to default on its debt?

In general, a government does not want to default on its debt, unless there is no other way to continue its governance of the country. Firstly, a government defaults on its loan would only make its future borrowing more expensive. Secondly, defaulting on government loans will influence government's credibility, which determines the value of fiat money; therefore, an economic instability will be created. Thirdly, a government defaults on its debt could cost the political career of the politicians and the ruling political party. The potential costs are much higher than the potential gains from defaulting on government bonds. Therefore, any stable and thoughtful government and leader will not default on its debts.

However, it is not new to see a government to default on its debts. There are some cases when a government has to default on its debt. Such cases can be categorized into two categories. The one category is economic instability and unsustainability. The other category is political instability and discontinuity.

Investment in Energy

Energy is important in many aspects. First, energy is the necessity for our model civilisation. We need energy for work, home and leisure; most of us cannot survive without energy that we need fridges to store our food and need computers to complete our work and need Internet and smartphones for booking hotels for holiday. Secondly, energy helps to further develop our technologies. We can say that all modern technologies are based on energy that without the supply of electricity, modern technologies become useless and it is impossible for any further development or innovation. Thirdly, energy is key for our development, not only technological development but also economic development. Since energy is so important, how much should we invest in energy?

Although state and government investment can be influential, private investment is more important and powerful, as private investment shows the extent of interests within the economy as well as the community. When there is more private investment, it does not only show more private money is put into investment in energy, but also shows more human resources including intelligence are put into energy development. Private investment is depending on the risk and the expected returns. Investment in energy has enormous potential returns, as many businesses and countries accumulate their wealth solely from oil. However, the risk is enormous as well. The amount of money is required to develop a new energy source. Moreover, businesses and countries also need to consider the opportunity costs that the amount of funds required for energy development can be used for other less risky uses.

Currently there are many businesses and countries which show their interests in new energy (mainly solar energy) and new energy vehicles. This is because these countries and businesses have believed the solar energy is now much mature and close to perfection, the risk in investing in solar energy and new energy vehicles is much less now. Investment in energy and other key technologies which requires enormous funding needs some bravery investors who are willing to take the risk, and in general their initial investment may not be paid off fully.

How much time do you have?

How much time do you have? This is a question that many of the people have been asked and asked themselves. In economics, this has been a question modelling the labour market. Labours have to choose how much time they spend on leisure and how much time they spend on work. To put into more detailed categories, work can be further split into departmental work, company work and other types of work, and leisure can be split into home time, movie time, holiday and other types of leisure. Economists expect when a person earns enough income, he or she will spend more time on leisure but less time on work. However, what we see in the real world, many super rich people are spending awful a lot time on their work, this might need another model to explain this issue.

People have limited time. People do not only have limit time to work on things, people also have limited time to be given things. For example, there are millions of applications available on Apple’s App Store and Google’s Google Play; however, one’s smartphone has a limited storage to install applications and people have limited time to use the applications installed on their smartphones. In addition, there are billions of different websites, but not all can be seen by a number of people. Some useful or interesting websites are not seen by most of us. Therefore, it is extremely for anyone to study how people use their limited time.

Record high dealmaking

Trade tension has been a significant concern in the global economy as well as the financial market. However, several facts show that the current trade tension has not been affecting the US financial market that the stock market is at a historical peak and dealmaking (merge and acquisition) has hit a record high of $3.2 trillions. These two facts do not only show investors’ confidence in the US financial market, but also shows the boardroom confidence in the US businesses.

Boardroom confidence can be split into two parts. On one hand, the US businesses have had so many M&A activities because they believe in the future US economic performance, so they want to expand their businesses in order to get the most of a good period. On the other hand, the US businesses believe that it is the time for them to grow bigger to beat other countries’ competitors. Such confidence in beating other rivals is based on the confidence in the US economy as well as the US foreign policy. The aggressive US foreign policy helps the US businesses to gain more competitiveness in the global market. And the good performance of the US economy helps the US businesses to generate sufficient cash to compensate the cash loss from their merge and acquisition activities.

Overall the US businesses are confidence in the US economy as well as the strength of the US politics; furthermore, some of the businesses may even believe in the trade tension will work in favour of the US businesses.

Being a least developed country

China is categorized as a least developed country, this may sound bad to many Chinese people as they believe that China has been a much more developed country comparing with many other countries in the world since the economic reform under Deng Xiaoping. However, the US President Trump pointed at one of the benefits of being categorized as a least developed country, which is the cheap global postal rates. Trump claimed that it is cheaper to ship a package from China to the US than to ship a package within the US.

This is true under the rule of the Universal Postal Union, a UN body; the cheap postal rate is given to least developed countries for the consideration of social equality. The Universal Postal Union is aware of this issue but has decided that it will not discuss the issue until its next meeting in 2020. Trump is definitely unhappy, his administration is considering setting its own rates. The postal rate is one key of transportation costs. Cheaper postal rates can certainly benefit some small businesses in least developed countries which use posts to ship their products worldwide.

The small businesses which benefit from cheap postal rates cannot continue its profitable method forever. However, meanwhile it does not make China any bad to be a least developed country, instead it gives many Chinese businesses the benefit of cheap transportation cost.

The implications from the Plaza Accord

The Plaza Accord is believed by many people as the key that ended the legend story of the Japanese rapid economic growth. The Plaza Accord was an agreement between the US, Japan, as well as the UK, France and West Germany, to depreciate the US dollar in relation to the Japanese Yen and the German Mark, signed on September 22th, 1985 at the Plaza Hotel.

The Japanese government was not forced to sign the agreement, instead the Japanese government voluntarily entered the negotiation with the US and compromised on the exchange rate issue. In early 1980s, the US dollar had appreciated by more than 50% against other major currencies, leading to a dramatic increase in the US trade deficit. The trade tension between the US and other countries, especially Japan, had increased due to this increase in the US trade deficit. This is a bit like what the current trade tension between the US and other countries is. Japan did not want to enter a trade war with the US due to political as well as economic reasons, so Japan tried to negotiate with the US and the Plaza Accord was signed in order to release the trade tension. However, after the Plaza Accord, the Japanese manufacturing sector was deeply hurt by this agreement, as the Japanese products became more expensive while the US products became cheaper in the world market.

This story certainly provided several implications. Firstly, if only being able to win competitions by prices, it does not last long. Secondly, when trying to compromising in order to avoid a trade war, it is really just choosing the best among the worst scenarios. Thirdly, here comes a question if other countries have to compromise when the ‘enemy’ is the US. Fourthly, if the trade tension is caused by a wide trade balance difference, then is there a way that is able to auto-correct the trade balance between countries?

Political strategy (Another paper review on “Attack When the World Is Not Watching? US News and the Israeli-Palestinian Conflict” by Durante and Zhuravskaya in 2018)

I already wrote a paper review on this paper yesterday; however, I feel there is a lot more to discuss. One of the important functions that media has is to make policy makers and governments accountable. However, media reports have lots of constraints. One of the constraints is that media has to report information within a limited time period. Media is run by businesses whose target is to maximise profits, so they have to spend more time on the news that their audience love to watch instead of giving equal weight to all kinds of news. Here comes to the second constraint, which is media’s audience. For example, the reports of Fox News are very pro-Trump, since their audience are mainly conservatives (Republicans) and blue collar white workers. Because media has to target different groups of population, their reports could be potentially biased. When biased information is provided, the general public do not have correct access to information, so they do not have a close-to-truth image of the world. The reason for media to target different types of audience is again a business based decision and to maximise profits, since differentiation can help these media companies to gain some oligopoly market power. Overall, we can see that since media companies need to maximise their profits, people will never get perfect access to all information with equality and unbiasedness.

Another thing I want to discuss about in this paper is that countries’ unpopular actions. The US, China, and Russia are three major powers at the centre stage of the world politics, their actions are reported by media around the world, so they have to be very careful of making their decisions and even choosing correct words in their government announcements. However, there are many small countries which are not in many people’s eyes. Just aks one question how many countries a person can name. Those countries which people can hardly name are not reported worldwide. Their governments are not held accountable by the world media, so it is easier for these government to be corrupt. In addition, when the governments are commonly corrupt and the majority of the media audience do not care about these governments, these governments’ news will be less and less frequently reported. Therefore, the left-out countries will be more left-out.

What are the others doing? (Paper review on “Attack When the World Is Not Watching? US News and the Israeli-Palestinian Conflict” by Durante and Zhuravskaya in 2018)

Today I want to review another political economics paper, “Attack When the World Is Not Watching? US News and the Israeli-Palestinian Conflict”, written by Durante and Zhuravskaya in 2018. This paper is also about media, studying media coverage and political strategies. I will again ignore the methodology and focus on the results and their implications. This paper uses the conflict between Israeli-Palestinian to study if policy makers conduct unpopular actions strategically to coincide with other newsworthy events. The authors focused on the Israeli attacks on Palestine and the data about Palestinian victims caused by the attacks, because of the lack of data on the Israeli side and the Israeli defence system has blocked a large number of Palestinian attacks. The results find that policy makers do strategically conduct unpopular actions to coincide with other newsworthy events, as the number of victims increased when other expected newsworthy event happened (such as US elections).

This result is generally true, then when there are some major events happening, some unpopular policies may be conducted in some small countries or less “newsworthy” countries. Currently, there are many newsworthy events happening, such as the trade tension between China and the US, the Russian Probe in the US, the mid-term election in the US, and unignorable newsworthy US president, Donald Trump. However, at the meantime, we need to ask how much of other news we are ignoring. We do not only ignore and forget to help some tragedies happening in other countries, we also tend to ignore things happening surrounding us or in some less “newsworthy” classes in our own society.

Therefore, when big things happen, we still need to remember those left-out groups and help them.

Brutality behind media (Paper review on “News Droughts, News Floods, and US Disaster Relief” by Eisensee and Stromberg in 2007)

I have lots of thoughts after reading the paper, “News Droughts, News Floods, and US Disaster Relief”, written by Eisensee and Stromberg in 2007. The methodology used in this paper is very innovative and inspirational that the authors used Olympic Games as an instrument variable, and lots of other economic studies can borrow their methodology idea. However, I would like to talk more about the results brought out by this paper. This paper studies the media coverage across different types of disasters and different regions in the US. The results seem very brutal to me that it leads to a serious issue that people’s lives are not treated equally.

	Share in news	Equal coverage casualties ratio
Volcano	0.30	1
Earthquake	0.33	2
Fire	0.14	12
Storm	0.14	280
Flood	0.09	674
Landslide	0.07	882
Epidemic	0.02	1696
Drought	0.04	2395
Cold wave	0.06	3150
Food shortage	0.03	38920

	Share in news	Equal coverage casualties ratio
Europe	0.18	1
S. and C. America	0.18	3
Asia	0.13	43
Africa	0.04	45
Pacific	0.03	91

1 person killed by volcano gets the same media coverage as 38920 people killed by food shortage, and 1 person killed in Europe has the same media coverage as 91 people killed in Pacific. Such result shows enormous inequality of getting media coverage. Getting more media coverage can help to gain more support and aids, as more media coverage can draw more public attention. However, as we know in general more common events are less likely to get more media coverage, more common disastrous events get less media coverage and less social support, while more common events are the most disastrous.

The results imply people suffering from more common events receive less media coverage and less likely to receive sufficient support and aids.

Are large companies that socially undesirable?

In general, it is more socially desirable to have a competitive market instead of a monopolistic or oligopoly market, since people expect the monopolistic and oligopoly companies use the market power they have got to exploit consumer surplus. Therefore, from consumers’ aspect, it is definitely not desirable for them. However, monopoly and oligopoly companies can have some positive effects.

Firstly, many state controlled companies are largely monopoly or oligopoly companies. Because they are usually natural monopolies, they can guarantee a socially desirable production level with a socially desirable price level under government influence. Secondly, the employees in monopoly companies usually receive higher incomes which make them more likely to live comfortably. Thirdly, monopoly companies have more resources, they are very interested in developing technology and create more innovative and complicated products in order to build technology barriers that prevent competition. Such strategy can actually encourage more innovation and invention since the enormous amounts of resources that the large companies have can increase the success rate of innovation and invention. Fourthly, large companies draw more social attention, the public force these large companies to take more social responsibility. Fifthly, large companies may not face competition from their industrial peers, but they can face competition from competitors from other sectors. For example, Nokia was a mobile phone giant, but got beaten by a music player maker, Apple. Therefore, monopoly companies may not be able to exploit their consumers as much as possible because of the possible competition.

To conclude, monopoly companies do not have infinite amount of market power, they also have some positive influence.

Is giant’s influence a good thing for start-up businesses?

There have been many startup businesses who are receiving support from giant companies, including Alphabet, Apple, Tencent; meanwhile, these giant companies also seem interested in investing in interesting startups, for example, one of Alphabet’s subsidiaries is GV, formerly Google Ventures, which provide early stage funding for technology companies. Is such financial help a good thing for startup businesses as well as the entire market?

On one hand, it is good for the startups who receive financial support from those giants, as all companies are better off with more funding. Secondly, when giants are interested in startups, the success rate is higher since they are more likely to win funding from the giants and hopefully become a giant in the future. This will give more incentives to people with innovative ideas and enthusiasm to start up their enterprise, since the cost is lower. Thirdly, giants do not only supply funding, they can also supply different kinds of resources, including technology as well as supply chain and more access to funding. This can make startups much easier to succeed. On the other hand, such influence can be a disrupt of the ordinary market order. Firstly, these giants will fund those startups which have the potential to beat them in the future. Instead they are more likely to use their enormous resources to copy a similar model and destroy the startups. So those startups which can really threat the market power of the existing giants will not receive the support from the giants and these startups are the really needed ones. Secondly, giants are only interested in investing in the startups which they are interested in. However, the startups which the giants are not interested in can also be innovative and game changing; even because they are not noticed by the giants yet, they are more game changing, but facing unfair competition. Thirdly, once the startups are invested in by the giants, they are no longer independent, they may have to rely on the support of the giants, since they get their accesses to many key resources through the giants. This will only make the giants gain more market power even if the startups succeed.

To conclude, once giants start to influence the startup businesses, it can certainly reduce the cost of start up some specific businesses; however, it will not help to improve the market competition significantly.

What is a good environment for start-up businesses?

Countries and governments love innovation and invention, since innovation and invention can make the economies grow faster and generate more incomes and improve productivity and efficiency. Countries and governments love seeing more and more startups, because startups do not only introduce new business ideas, they also generate new innovation and invention and create more jobs for the economies. Many governments have introduced various policies for start-up businesses. What is the best that a government can do to create a friendly environment for startups?

Governments love start-up businesses, because they tend to be more energetic. Governments want to protect start-up businesses from hostile takeovers by the large companies, but do not want to protect startups too much, since governments want to keep the market competitive and the startups energetic and innovative. Governments want to let banks more willing to lend money to start-up businesses, but they are also worried pushing too hard will make banks have a large amount of bad debts on their balance sheets, which can potentially cause a financial instability for the entire economy. It seems that governments always want to protect start-up businesses to encourage their innovation and competitiveness; however, at the same time, governments also worry protecting start-up businesses too much that make start-up businesses lose their competitiveness and energy as well as innovation and invention.

Governments also try to find a balance in the attitudes towards start-up businesses. However, I think that instead of thinking about what can be done for start-up businesses, it is better to think how to reduce the market power from the giant companies which are real and direct threat to the growth of these start-up businesses.

Should Apple eliminate the leaks?

Tomorrow is Apple Special Event, which is probably the most important Apple’s event in a year since new iPhone models will be announced and iPhone is Apple’s biggest source of revenues. However, there are lots of leaks that report the possible iPhone models which will be announced tomorrow. People expect there will be four iPhone models, Apple Watch Series 4 and a new version of 12 inch iPad Pro announced tomorrow after reading all sorts of leak reports. A security analyst Ming-Chi Kuo is famous of his accurate predictions about Apple’s products. However, such leaks did not happen during Jobs’s period. Here comes a question that whether these leaks benefit or damage Apple.

On one hand, leaks can help Apple to gather more attention that leaks make people talk more about Apple’s products for a much longer period. This can improve Apple’s popularity and publicity. In addition, leaks can give Apple more feedback about its coming products, this gives Apple some chances to improve their products before Apple officially announces its products, although Apple does not necessarily do that. On the other hand, Apple may be able to create more publicity for its products; however, it will definitely reduce the publicity of its Special Event, especially when many of the previous leaks are proved to be true, since people expect nothing surprising will be announced during the Special Event. In addition, if Apple does not leak the information voluntarily, then it means Apple loses the control of its internal information and secrets. This is a huge problem if Apple wants to launch some game changing products, like iPhone in 2007; because Apple’s competitors can get the information about the game changing products through these leaks and design their similar products.

Overall, leaks do not always damage Apple but if Apple wants to be a game changer again, then leaks are a big problem to Apple.

Can Apple produce its products at home?

‘Designed by Apple in California Assembled in China’ is engraved on most Apple products. Design which is the most important part of a product’s production process is made in the USA; however, the majority of the parts is produced outside the USA. The US President Trump is asking Apple to produce its products at home. How likely is Trump’s proposal to be true?

Apple’s suppliers are all over the world and some are significantly large companies which support their countries’ economies. If Apple does not renew their contracts, not only these companies will be hurt and even face bankruptcy, also the economies which depend on these companies will be hurt and even face recession as well. Therefore, Trump’s proposal is a huge threat to the emerging markets, Apple’s 1 trillion dollar market value exceeds some emerging markets already. However, these countries which have some degree of dependence on Apple’s orders will strongly oppose Trump’s trade policy. In addion, Apple may not like this idea. The labour cost in the US is much higher than the labour costs in the emerging markets that if Apple changes to use American suppliers, its costs will increase dramatically. In addition, changing suppliers will affect production efficiency. The current suppliers have produced Apple’s parts for years, they are experienced suppliers who can produce more efficiently. Once Apple switches its suppliers, the production efficiency will decrease, this will affect Apple’s supply chain and cause a huge problem for Apple.

Therefore, Trump’s proposal is just a proposal or a threat, it won’t come trune.

Is Elon Musk hurting his company

Tesla’s share price slip today after the human resources director announced her leave from the company, following the leave of the company’s chief accountant officer. Some people suggest that Elon Musk is the core of his company’s problems because of his instability. Elon Musk is undoubtedly a genius with excellent ideas and brilliant imagination; however, he does not deal with other people with differences very well. He has been constantly attacking the investors who short Tesla’s shares, he attacks a British diver who helped rescue a Thailand boys’ football team and called Tesla’s miniature submarine a ‘PR stunt’ three times. Moreover, he even smoked marijuana during an online interview. We know from his previous interview with New York Times that he is using drugs; however, this is definitely something shocking to many people that a public and well-known company’s CEO uses drugs publicly, though it is legal in California. On the other hand, he went on an interview with YouTubers who love him and his company(ies) and got along with them very well. The YouTubers may be Tesla’s shareholders but they are not institutional investors; they may be influential on YouTube, but hardly influential in the financial market. In this way, Elon Musk is like Trump who likes to be surrounded by the people who love him and hates to be disagreed.

We should give the geniuses more tolerance and patience that Steve Jobs had not been a very good head of a company either in the beginning. However, Elon Musk’s instability has created a number of crises for Tesla, and even legal cases as well. For example, the recent privatisation tweets have made Tesla and himself be sued by several investment firms which will cost Tesla millions of dollars to settle these cases. These costs are unnecessary, and really distraction from the core of the company. The issue is not only about the argument about whether to be public or private, but also if Elon Musk controls himself as the market wants him to be. Elon Musk is not a common person, he is special; this is why some people love him and also why some people dislike or hate him. We cannot ask him to be a normal CEO, and Tesla’s value is not built on him as a normal CEO. It is Okay for him to be special to be a king in his company, to hang out with the people who love him; however, he should be more careful and speak less in public, just in case of avoiding some damaging effects.

The problem in the US economy

The US stock market is not performing very well and I am doubting if the longest bull market will continue its legend. In addition, US factory orders were reported to shrink by more than expected in July and the three consecutive months growth ended, according to Thomson Reuters survey. People blame the US current trade policy and the trade tension with other countries. In addition, although the Trump administration has issued several tax cuts for individuals as well as cooperation, people expect the economic growth of the third quarter is going to decline and the stimulation generated by the tax cuts will not last too long. The fear of the weakening US economy definitely affected the US stock market and has dragged down the market performance.

Besides the trade tension, there are several problems facing the US economy. The unstable political environment is a big negative factor. An unstable political environment means that the companies in the US are facing more uncertainty about the effects coming from the government, such as the interest rate changes, the tax rate changes and regulation changes. In addition, if the US president is impeached, then lots of attention and work will focus on the President impeachment rather than other issues, such as trade negotiation, economic growth and other economy-related topics. When less work is done on boosting and/or stabilizing the economic performance. the policies on the economic performance will not be made on time. Moreover, the economy of the rest of the world seems weakening. The US economy is not standing by itself, its companies and individuals are doing businesses with the individuals and cooperation from other countries. The factory orders decline shows the weak demand from other countries, and the weak demand is caused by other countries’ weak economic performances, which is likely to weaken the US economy as well.

To conclude, the US economy may be in a very good shape, its hidden danger is real and making influence on the economy right now. Investors and people need to be more aware of the increasing uncertainty and the downside risk of the US financial market as well as the US economy.

Is it wise to make money from sports?

It is a very exciting era that every day there is big news about politics and economics around the world. However, I want to talk something more relaxing and less serious, which is sports. CVC Capital Partner is attempting to acquire Premiership Rugby with a £275m. CVC Capital Partners is a private equity firm and this is not the first time for this firm to enter the sports industry that CVC Capital Partners owned a Spanish sports management company and Formula One previously. Therefore, we can see this private equity firm has experience in the sports industry and seems to be good at making money from the sports industry. Then how easy is it to earn money from sports?

When people look at Ronaldo and Messi and many other famous sports, people believe that it is easy to make lots of money from playing sports. However, people only know those successful sportsmen, there have been millions of unsuccessful sportsmen and those who put efforts but have failed to be professional sportsmen. Therefore, the expected return from being a sportsman is very low, so it is not worth of investing in being a professional sportsman.

How about actually investing in sports related assets including companies’ stocks? Sports is entertaining but not necessarily good for businesses or investment. Sports businesses rely on sports supporters who do not pay for enjoying their sports as frequently as surfing on the Internet. They are not stable income sources, as their consumption decide is made based on various factors, such as their incomes and their luxury choices. Sports businesses rely on sponsorship and advertisement. However, these income sources are dependent of sports achievement; meanwhile, incomes and achievement are correlated with each other Good results need high income incentives and good sponsorship goes to sports firms with good results since only good sports firms have more opportunities to play in front of large crowds.

What is the most important in the stock market?

Today Amazon joined Apple to be the second $1tn dollar company. Meanwhile, the electric car maker, Tesla, suffered a 4% drop in its share price, following Goldman Sachs maintain Tesla’s Sell rating at $210. Amazon and Tesla actually have some similarity. When Amazon first appeared in the stock market and showed its increasing debt level, investors were not very confident in investing in this stock, even now Amazon is still one the most shorted companies around the world. Tesla is still at its growing stage, and its market value is very high comparing with the market values of the traditional players in the auto industry; therefore, it is not surprising to see so many investors are shorting Tesla’s shares.The market does react to stories, when Elon Musk or any other company leader is telling a good story, the market will react to it and push the company’s share price higher; and vice versa. In some ways, investors could have more imagination than these companies’ leaders, even including the legendary Steve Jobs. When investors are making imagination to make expectations about a company, they can go very far and build a super glamorous picture that even the company’s leader is not capable of imagining; once this occurs, an overestimation about the company’s value appears. However, on the other hand, if investors’ imaginations cannot match the company’s leader’s imagination and capability, then they will underestimate the company’s value. Therefore, valuation is like investors receive a story from a company and use their own imagination to create more in this story then use the amended story as their investment guideline.

This may teach companies about how to be successful in the stock market. There have been some stories about some small cap companies are operating fantastic businesses and making good revenues but their share prices hardly increase. This is because no one pays attention to their stories so their companies’ values are not recognised by the market. Therefore, for a company to succeed in the stock market, the company has to draw people’s attention and tell good stories and make people believe their good stores will be continuously delivered (not only by making good revenues and paying good dividends, but also delivers the story about a “bright future”).