The hard cases

The methods seen so far assume profits, or at least cash flows. What do you do when there are none?

First case: the company that loses money, but grows fast. You no longer value profits. You value a promise.

Amazon listed in nineteen ninety-seven. Its first yearly profit only came in two thousand three.

So you look at other things: revenue, its growth, what each customer brings in, and what it costs to attract one.

And above all, you think in scenarios. Say a one in ten chance of being worth ten billion one day, and nine in ten of being worth nothing.

The expected value is one billion. But nine times out of ten, the result will be zero. It is a serious lottery ticket.

Second case: assets that pay nothing. Gold, a painting, a digital token.

No rent, no dividend, no interest. No flow to discount. The DCF has nothing to say.

Their price depends only on what the next buyer will agree to pay. And on the trust everyone puts in them.

In the app, this chapter is animated and narrated, card by card. Start free trial.

Download on theApp Store

Gold has thousands of years of trust behind it. A painting, rarity and taste. A token, often, the enthusiasm of the moment.

You can hold these assets to diversify or protect yourself. But you cannot say if they are expensive by counting their flows.

Third case: unicorns. Young unlisted companies, valued at more than one billion dollars.

The word was coined in two thousand thirteen by an investor, Aileen Lee. At the time, they were rare, like the animal.

Where does this billion come from? For the example: a fund pays one hundred million for ten per cent of the company. So the whole is deemed worth one billion.

But these hundred million often come with protections, like being repaid first in a sale. The billion shown flatters reality.

And this price was paid by only one buyer, for a small share. Not by a whole market, every day.

Then comes the reverse. When money gets scarce, new rounds are raised at a lower price.

WeWork is the best-known example. Valued at forty-seven billion dollars privately in two thousand nineteen, it gave up listing the same year.

In two thousand twenty-three, it filed for bankruptcy in the United States. A private value remains an opinion, until someone else pays that price.

In these three cases, no calculation gives a clear answer. You have to accept it, and adjust the size of the stake.

When you cannot value, you can at least limit: only put in what you accept losing entirely.