Go public or private?

Many companies are seeking for IPO opportunities while Tesla's founder, Elon Musk, wants to take Tesla private. The owners of companies can get a lot richer if their companies become publicly listed. Lei Jun, the founder of Xiaomi, became the 87th richest in the world after Xiaomi's IPO. There have been questions surrounding if a company should go public or private. When a company is private, its ownership and management are generally concentrated, it is easier to manage the company. While if a company is publicly listed, it has to publish its earnings every quarter, and any major event has to be made public and even require its board to have a vote, which can take quite long, so the efficiency of management is relatively poor than the efficiency of management if the company is private. In addition, because a public company's performance is evaluated every quarter, this forces the company to take actions to generate short term performance boosts. Of course, the investment made for long term purposes could be understood by shareholders; however, many of the shareholders only want to squeeze companies' profits as well as cash flows out of the companies to put inside their own wallets as soon as possible; therefore, in general, it is not easy for public companies concentrate at generating long term growth.

Being publicly listed means financing is a lot easier. Once a company is publicly listed, it is easier for the company to borrow from banks while the company can finance itself from the equity market. If a company can have an easy access to funding, it is easier for a company to operate smoothly in order to generate sustainable profits and growth. Of course, a successful private company can also get sufficient funding to help itself to grow; however, when a private company and a public company are at similar levels, the public company definitely can get more funding than the private company.

There is not a clear judgment to say whether one is better than the other; however, for a starting company or a fast-growing company, being publicly listed might not be a good idea, though it can help the company to get an incredibly large amount of funding in a very short period, since such company should focus more on long term growth rather than short term earning boosts.

Is Tesla going private?

The founder of Telsa, Elon Musk, created an outcry in the stock market by his tweets on Tuesday. His tweet, "Am considering taking Tesla private at $420. Funding secured", pushed the stock up by over 10%, though the stock price did not reach $420 due to the existing of uncertainty. Some stock commenters argue that if Tesla does not go private eventually, the short side is likely to sue Elon Musk for manipulating the market; even if Tesla goes private later, some people point out that if the funding is not secured at the moment, Elon Musk could be accused of spreading fake information to manipulate the stock. Because of the legal problems, if Elon Musk is aware the legal issue his tweets could cause, the information from his tweets should be true. Moreover, the Saudi Arabian fund is just found to increase its stake in Tesla, it might be a source of funding for the privatization.

Then we need to ask if Elon Musk has the incentive to take Tesla private. Elon Musk has the control over the board, since his brother is the director sitting in the boardroom. Elon Musk is not getting well with the Wall Street, as last time, he rudely interrupted the Wall Street analysts' questions during the earnings call. He seems that he has been bored of answering the Wall Street analysts' questions and wants to take 100% control of the company without the influence of the financial institutions. Therefore, Elon Musk has a plenty of incentives to take Tesla private, and he has asked for it for years.

To conclude, the probability of Tesla going private is high.

Gender discrimination

A Japanese medical school, Tokyo Medical University, is found to rig its entrance exams to discriminate against women for more than a decade, as the university seems to hold the belief that giving the education resources to women is a waste of resources due to the low participation of women in the labour force. Japan has a culture that has a serious issue of gender discrimination. It is stuck at 114 out of 144 countries on the World Economic Forum's rankings of gender inequality and the female participation rate in the labour force is significantly low, despite the current Prime Minister Abe is progressing his program of "womenomics" targeting increase female participation in the labour market.

If the environment is constant, then it is unfair to say Tokyo Medical University is wrong because if it is certain that the majority of women is not going to the labour force, the medical school should give more resources to those who are more likely to go to the labour market. However, the environment is not given, it is created by everyone in the community. If everyone takes the environment as given, then the environment is constant and cannot be changed. However, if people in the community are trying to do anything to improve the general environment, then the environment is changeable. Therefore, standing at the social responsibility point of view, the act of Tokyo Medical University is not socially desirable and does not hold social responsibility.

From Tokyo Medical University's rigging entrance exams to discriminate against women, we can see that the gender inequality in the Japanese community is very serious and has made people feel hopeless, some people already give up their efforts to improve the gender equality in the community.

Price competition

The launch of the first zero-fee fund by Fidelity can be a trigger to start a widespread price competition in the fund market. Usually, a price competition is started by one player in the market starting to lower its price; such move can force everyone else in the market into a price competition. Price competition can be brutal and crazy that suppliers squeeze their profits in the hope of winning larger market shares and earning much greater profits in the future, and sometimes suppliers may even sell at the prices below the costs, which is known as "dumping".

If every supplier has the same capacity of production, then a price competition makes no sense because everyone is only able to lower its price up to the same level and the only result a price competition gets is everyone gets zero profit. However, if suppliers have different capacities of production, then the story changes. The suppliers who can produce their products more efficiently will win the price competition. In addition,  if there is a supplier that can produce the product at the lowest cost in the market and also is capable to produce the product for the entire market, this supplier can win the entire market through a price competition.

Cost of production can change over time. If all suppliers expect that their costs of production will decline in the future, then they have no fear of lowering prices below their costs of production. Furthermore, those who hold more confidence are likely to be more aggressive in the price competition, and the risk for them is also going to be higher.

As we can see a price competition is only beneficial for the companies with efficiency advantages, a price competition is likely to only occur when there is a clear efficiency gap within an industry.

A forecast of the near future American stock market

Apple has become the first trillion-dollar company while Facebook suffered the biggest single day loss in the US stock market last week. People are talking about Maga instead of Faangs, showing investors are making different expectations about these tech giants. Moreover, since the market seems to have biased interested in these tech stocks. While Facebook’s and Netflix’s share prices fell significantly, people were crying if the tech stocks were back to the earth. After seeing Apple’s trillion-dollar market value, I think that we can come to a conclusion that these tech stocks are still above other stocks.

In addition, as the market focuses their attention on tech stocks. The stocks with more market attentions will increase much more significantly than other stocks, widening market value gap. Furthermore, the uncertainty caused by the trade tension at the moment make the attention effect more significant, as investors are seeking the stocks which are less affected by the trade tension.

The US stock market is enjoying the Trump’s administration’s tax cut and the government is thinking about giving more tax cuts to people who hold stocks. The tax cuts will make stock investment more attractive.

To conclude, in the near future, Maga share prices are highly likely to increase at significant rates.

The price competition in the financial sector

Today Apple became the first trillion-dollar company and won the race against other MAGA companies. While the market is celebrating this event, asset management firms seem to be forced into a price competition, as Fidelity launched the first zero-cost index funds in the US on Wednesday. The share prices across the asset management industry fell today in the response to Fidelity's move.

The zero-fee funds are index funds; since they are passive funds, their management costs are relatively low, this makes zero-fee funds possible. Of course, other asset management companies can also launch zero-fee funds and maintain their current market shares. However, this will significantly lower the companies' profitability. Therefore, for the asset management industry, they have two options, either they enter the price competition and launch zero-fee funds, or they leave the passive fund market and gain their profits from the active fund market.

Whatever asset companies choose, the competition in the fund market will increase inevitably. When the companies choose to stay in the passive fund market, the competition is obvious that they have to launch zero-fee funds. If some decide to leave the passive fund market and focus on the active fund market, they have to outperform the passive fund market (which is difficult at the moment as many active funds are underperforming passive); moreover, the number of active funds will increase, more efforts are made in the active fund market. This will force active funds to perform better and lower their management fees.

To conclude, Fidelity's launch of zero-fee funds will lower the fees of all funds in the industry, including both passive funds and active funds. This is highly likely to affect the wage level in the asset management industry, as the companies are facing lower incomes from fees.

The changeful market

After Apple reported a strong quarter report, the share price climbed to $201.32 per share. The market stops talking about Faangs (Facebook, Amazon, Apple, Netflix and Google) and starts talking Maga (Microsoft, Apple, Google and Amazon), since these four companies have delivered strong earnings reports this quarter while Facebook and Netflix show slowing growth. Though I do not think that the entire market will shift their attention completely in such short period, it shows how changeful the market can be.

Because of the attention effect, once a stock is losing its attention, the stock price will fall significantly, as investors change their attentions to other stocks, they will switch the stock to other more popular stocks. Meanwhile, those which gain more market attention will increase in their share prices. In addition, as we can see that the number of the core stocks decreases from five to four, this means fewer companies are gaining more attention, this could lead to a concentration of market attention as well as market capitals. This will make larger stocks becoming larger and smaller stocks becoming smaller, leading to widening the market value gap.

Because of the concentration of market attention and capital, I think that we are not far from seeing companies which are worth trillions of dollars, and even trillionaires, as rich people's wealth is closely related to stock performance.