Two Wacko Investment Opportunities

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).

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Author: Paul Foster
Paul's life’s purpose is to bring more cash, freedom and happiness to independent business owners. Paul wants to learn about your toughest business challenges and frustrations so he can help you tackle them.