Something is definitely up in the investment world!
Wacko Investment #1:
Do you know how much interest you will get for loaning money to the German government for 10 years? They will pay you NEGATIVE .07 percent! Loan them $10,000 right now and you will get back $9,930 INCLUDING THE NEGATIVE INTEREST!
The 2-year interest rate is worse! NEGATIVE .62 percent – Loan the German government $10,000 for 2 years and get back $9,876 including interest!
The bonds that I buy pay you back your investment plus interest! How does this make any sense?
Wacko Investment #2:
Lyft Inc. – The ride-sharing competitor to Uber, went public on Friday, March 29, 2019. The stock traded at $78 at the end of the first day of trading. That puts the value of the business at about $26.5 billion! Usually, we would use a price-earnings multiple to assess if it is over-priced or not. But they don’t have any earnings! They lost $911 million in 2018. That is a loss of over $43 per share! The revenue grew from about 1 billion to 2 billion from 2017 to 2018. But they basically had expenses of $3 for every $2 of revenues.
… and there were more investors wanting to buy the new issue that they had shares to issue!
By way of comparison, Ford Motor Company also had a bad year in 2018 also – it only made a profit of $3.7 billion. That’s about 92 cents a share profit on a stock price in the $8.50 price range. (and it pays out 60 cents a share as a dividend – a positive 7% per year).
Could someone please explain to me why Lyft shares or German bonds investments at negative yields make any sense? My personal opinion is that neither of them are a very smart thing to do. (Full disclosure – I do own Ford Motor Co. stock).