October 4, 2010
When evaluating an investment in a new product, one whose markets had previously been thought to be so niche as to be theoretical, this is the kind of language that would make a savvy sophisticated investor feel longer:
[It] also seems like there will be a high likelihood of these vehicles making their way to high-end rental destinations.
Sounds great! Product X will almost definitely be better off if a rental infrastructure develops around it that allows the product to be consumed in small increments by people who otherwise wouldn’t be able to afford it. Think movies (back when they were $100+ to buy), or timeshares, or NetJets, or Netflix (NASDAQ: NFLX), or whatever it is that Rent-A-Center (NASDAQ: RCII) does for poor people, or the idea of…renting as a business model. It works.
But after I tell you that “Product X” is a jet pack (btw “Product X” is a jet pack, rad I know) I think it’s important to note that there is an important caveat in this whole “jet packs being bought by high-end rental firms” thing. Let’s read the unabridged portion of that quote (from this article):
Assuming the first few owners don’t die horribly, it also seems like there will be a high likelihood of these vehicles making their way to high-end rental destinations.
I have bolded the important caveat for the benefit of unsophisticated investors, as well as the Japanese. When evaluating a product’s feasibility in the market place, and the returns one hopes to generate from an investment in such a product, it is crucial to ascertain the percentage probability that the first few owners die horribly. I can’t stress enough how bad the first few owners dying horribly would be — I mean it would be horrible to your investment. So try and avoid that.
Advanced sophisticated investors may also try to map out the percentage probabilities that the last owners will die horribly (see “Segway, The”). If the last owners were to die horribly, it’s likely your investment’s value will similarly fall right off a cliff.
HT to DWL