A Quote by Mohamed El-Erian
Because in the New Normal you are more worried about the return of your capital, not return on your capital.
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Obviously, consideration of costs is key, including opportunity costs. Of course capital isn't free. It's easy to figure out your cost of borrowing, but theorists went bonkers on the cost of equity capital. They say that if you're generating a 100% return on capital, then you shouldn't invest in something that generates an 80% return on capital. It's crazy.
Efficiency innovations provide return on investment in 12-18 months. Empowering innovations take 5-10 years to yield a return. We have ample capital - oceans of capital - that is being reinvested into efficiency innovation.
You know, capital isnt patriotic. Capital goes to where it needs to go to get a return.
In some ways you still have to buy your freedom, but that's because you live in a social structure that's organized around capital, and capital does equate with a certain kind of freedom, especially if you can start to generate capital on your own.
To see how much a company is truly earning on the capital it deploys in its businesses, look beyond EPS to Return on Invested Capital (ROIC).
The financial capital is being concentrated by corporations, institutional investors, and even our pension funds, and being reinvested in companies that repeat this process because it provides the highest return on that financial capital.
One of the special characteristics of New York is that it is different from a London or a Paris because it's the financial capital, and the cultural capital, but not the political capital.
Buying a share of a good business is better than buying a share of a bad business. One way to do this is to purchase a business that can invest its own money at high rates of return rather than purchasing a business that can only invest at lower ones. In other words, businesses that earn a high return on capital are better than businesses that earn a low return on capital.
Investors must remember that their first job is to preserve their capital. After they've dealt with that, they can approach the second job, seeking a return on that capital.
The advantage of the free market system is that people invest their capital, they create jobs by investing their capital, and hopefully they get a return on that investment. I don't think there's anything wrong with good old American capitalism.
Optimizing return on capital will generate less growth than optimizing return on education.
I certainly agree that capital is not a one-dimensional object, and that the return on capital takes very different forms for different assets or different people.
Never in any case say I have lost such a thing, but I have returned it. Is your child dead? It is a return. Is your wife dead? It is a return. Are you deprived of your estate? Is not this also a return?
The big picture is: the main thing you should be concerned about in the future are incremental returns on capital going forward. As it turns out, past history of a good return on capital is a good proxy for this but obviously not foolproof. I think this is an area where thoughtful analysis can add value to any simple ranking/screening strategy such as the magic formula. When doing in depth analysis of companies, I care very much about long term earnings power, not necessarily so much about the volatility of that earnings power but about my certainty of "normal" earnings power over time.
Venture capitalists are professional money managers. We are provided capital to invest as long as we can return it to our investors with a strong return in a reasonable amount of time. A strong return is three times cash on cash. A reasonable amount of time is ten years max.
The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital from static to more dynamic situations, the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth of the economy.
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