Re: poly: Re: Why interest rates may stay low

From: Perry E. Metzger <>
Date: Wed Mar 25 1998 - 14:55:42 PST

Robin Hanson writes:
> Perry writes:
> >Imagine tomorrow morning someone came up to you, Robin Hanson, and
> >asked you to invest your money in something with no way to calculate
> >the rate of return, no way to calculate the odds of any particular
> >rate of return, and no exit strategy for 150 years.
> >You'd tell them to take their prospectus and shove it.
> Yes, and I'd do this if you changed "150 years" to any time period
> whatsoever.

I wouldn't. If the term was 2 years and there was a possibility, but
not an easily quantified one, of high returns, I might say "yes" just
for the hell of it, given that I was likely to exit within two years
either way, especially if I knew the people involved and they weren't
kooks (a lowering, but not an easily quantified one, of risk.) Every
serious investor maintains a certain amount set aside for "speculative

However, speculative investment does not mean stupid
investment. Increased time means likely increased risk when you have
no good grasp on the exact size of the risk. Shorter terms are going
to involve less uncertainty in events, politics, law, technological
shifts, etc.

I think the easy way to put it is like this:

You can plan for one year. You can "half plan" for two. You can make
educated guesses out for five. Anything past that is science
fiction. A business that is going to make money or die in two years
can at least have something approximating a rational budget for
development laid out. Five years is bloody hard if not
impossible. Five hundred goes beyond lunacy into performance art.

If you want me to invest in something longer than five years in term
(building the Channel Tunnel, say), it requires that we be dealing
with something so mature (i.e. transportation) that our horizons are
extended, and it has to be something where return is well
understood. The Channel Tunnel investors all got screwed, of course,
which I think sort of proves my point, but at least there it was
unlikely that SSTs were suddenly going to take over the freight

> I'm asking for a reason why I should care much about that aspect of
> the scenario.

Well, I've expanded on it above. I can try expanding more if need be.

Received on Wed Mar 25 22:57:47 1998

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