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Comment by chrisco255 | Hacker News Reader

This is a big problem. There are fewer promising, early-stage investments available to retail investors than ever. More and more, private VC money captures all the value created by promising upstarts. Buying $1000 Microsoft stock in 1986, you'd have seen a more than 1000x return in that amount of time. Today, tech giants like Facebook IPO at $100B market cap, leaving very little room for big returns.

This is in part because private VC funding has matured...but also because there's all sorts of regulations about raising money that completely exclude non-accredited investors from early-stage investments.

No wonder the rich get richer...

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> Buying $1000 Microsoft stock in 1986, you'd have seen a more than 1000x return in that amount of time.

Presumably you wouldn't be buying one stock, but a portfolio of other public companies, including Real Networks, Enron, and MCI/Worldcomm.

Backtesting the portfolio built on the thesis "buy every single stock at its IPO" has been shown to lag the market.

The question is, looking back 30 years from now, will there as many (or any) public stocks that will have performed as well then, as MS has from 1986 to today?

Or will all the explosive early gains in future companies' growth be captured by the private equity ecosystem before the companies go public?

I lean towards the latter option.

Sarbanes-Oxley's aim was to de-risk the market, and lower risk generally brings lower returns.

Call me crazy, but maybe the first step to reversing that trend is for the startup founders to stop seeking VC funding as their first major milestone in their development. After all, the biggest coup counted by the VC world was convincing an entire generation of entrepreneurs that their way was the only way.

I hear you, but startups are extremely risky ventures. So risky that many don't even try. And if you have a family, it gets even harder.

VCs reduce the personal risk (at the cost to the personal upside). I suspect this compromise is helpful to very many.

Moreover, VC terms are far better than they were 20 years ago. It is not at all hard to get funding with 1x liquidation vanilla terms, something that used to be quite challenging.

The only way to get big returns is secrets, just like always. Insider trading has given way to insider investing or insider hiring, which is insidery just like always. The problem with the stock market is that it is too easy for people to invest in, relative to other options (private companies) where you are still welcome to (encouraged?) to learn about secrets. So people blindly buy indexes (past returns = future results somehow, even though by definition people are overvaluing whatever is in the bucket) instead of finding secrets.

> even though by definition people are overvaluing whatever is in the bucket

By that do you mean that etfs which people might buy are overvalued compared to the stocks which compose the etf? Or that overinvesting in the etf results in the stocks getting overvalued?

Because as somebody that works on etf market-making, no liquid etf is trading outside of a reasonable fair-value spread based on the underlying components, unless you count situations where markets for the underlyings are closed so there's no exact fair value.

The major threat to indeed investing is if the index ceases to represent its sector of the economy. As implied by this article.

Fang stocks have generated enormous returns relative to the S&P 500 though.

Facebook was worth $35/share at $100 billion in 2013. Now make that $170/share, far exceeding the S&P 500 in that period. Same for Google, Microsoft, and Amazon, which were already very big but became even bigger.

Sure, $35->$170 over the course of 6 years is a solid return. But it's not obvious to me that Facebook will be able to maintain that same growth rate over the next 6 years...(that would put them at a $2T market cap).

So it's unlikely that any one who invested in Facebook post-IPO will ever see 1000x returns ($100T market cap?)...or even 100x ($10T market cap) returns.

It still might be a buy...but is it life-changing returns?

Why should there be life changing returns unless there are proportionally high risks? There might be huge returns to be had, but it's not likely going to be with an established company that already has solid cash flow.

Not only that, mechanisms exist for you to leverage the hell out of yourself and you'll be able to see your life changing 1000x return.

1986 Microsoft certainly had plenty of cash flow and was already nearly a decade old company at that point. You can go back in time to 1960s McDonald's or whatever corporate success story you want. It was still a risk to invest in MS in the 80s. Its still a risk today. But retail investors had the chance to bet that desktop computing was the next big thing...or that fast food was the next big thing...

Absent corruption, higher returns are correlated with higher risks. If everyone knew MSFT in 1986 or McD in 1960s was what it would be today, then everyone would have jumped in and brought the returns down.

Similarly, people are free to jump into GOOG or FB or AMZN, and if they want to accept the risk of paying sky high prices for the equity, then they might be rewarded with "life changing" returns.

There's never a free lunch. And most people don't have enough set aside where they can gamble it on large returns. If they did, they would have access to VC, PE, or HF.

It wasn't exactly a secret that desktop computing and computing in general was going to go big. Microsoft and computers were hyped up in the 80s, and Microsoft stock did pop right after the IPO. It continued to pop all through the 90s. And a savvy retail investor could have predicted the same with McD's in the 60s. McD's was a viral success.

If capital markets existed then as they do today, both of those companies probably would have waited until hitting $10B-$100B market caps before going public (although, McD being a non-tech company might be more difficult for them to raise money through VCs), totally squeezing average joe out.

100-1000x returns are life-changing even with as little as $500-$1000 invested. Plenty of retail investors with sub-million net worth have more than a few thousand dollars in disposable income.

There's college educated, six figure a year producers out there who don't qualify for "accredited investor" status because they didn't happen to be born into the lucky sperm club with a paid-for free ride to an ivy league school and a trust fund to boot. The regulations, as they are, are excessive and total bull shit.

> Fang stocks have generated enormous returns relative to the S&P 500 though.

And yet trivial compared to what MS, Oracle, AOL, Yahoo and Amazon generated in the 90s (or 80s as well in the case of MS). The best part of Facebook's growth went to founders and accredited investors such as Peter Thiel, not the public markets the wider public could invest in.

A five-bagger is nothing when you're cherry-picking winners.

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