A World of Smoke and Mirrors

In this piece, I only hope to make you more aware of a “sick pricing methodology”.

Yesterday (20th of April 2022) I woke up to the news that Netflix, in after-market trading hours, is trading at -27% while by the end of the trading day (21st of April 2022), it managed to close at -35%. All due to a drop of 200,000 in paying users….

That made me think, how much we overprice and overvalue things these days… In the end of the day, 200,000 users at an average of USD 15.49 / month meant a drop in revenue of USD 3,098,000 per month or USD 37,176,000 per year. That translated into a drop in market cap of approx. 50 Billion USD (or 1,344 years.... yes, you read correctly, 1,344 years of annual revenue lost….).

When you look at it from this perspective, it makes you laugh somehow but it also highlights one of the biggest issues of our generation and the generations after us; how do we value things in general.

Back in the days, I remember that areas such as reliability, quality, profitability, punctuality, natural beauty, intelligence, humor, creativity, a general sense of “genuine” around things or people, used to be the measure of “value”. But now… we (as a species) tend to value today, companies at what they might be producing in the future (look at Tesla with an approx. 210 PE ratio) and not based on their current revenue nor profitability. We tend to follow and appreciate social media influencers which in many occasions, are portraying a fake image of themselves (I know... they are all very wealthy and flawless in their appearance… and it has nothing to do with the freebies in exchange of shouting out a name, nor the heavy make up and filters on top of it, making me wonder if they ever look into a mirror).

Also, I’ve seen some crazy transactions in the world of NFTs which, I genuinely believe that they show a very weird method of valuing things. I have also seen entities and individuals buying or renting “real estate” in the metaverse at insanely high figures.

Funny enough, I got to watch on Netflix in recent months, 3 tv series: Tinder Swindler, Bad Vegan and Inventing Anna and all of these 3, show how dangerous it is to have this approach to “valuing” thigs, people or ideas….

When it comes to the way we hire skilled people, a young graduate with a university degree and a Harvard MBA, with a huge IQ score and great social skills, will get a well paid job but not a job paying as much as the CEO role, as he doesn’t have the experience yet nor the complete knowledge, even though the candidate has all the potential to become a CEO. Yet, we price stocks based on what they might be in the future…. We value people based on what they are flashing in front of our eyes and not for who they truly are and we price the virtual almost at the same value as the reality.

Decisions (to buy something, to invest into something, to meet, hire, date or marry someone, etc) are based on two components: information (facts, data, statistics, probabilistic, forecast etc) and intuition (commonly known as gut feeling). It feels that these days, a completely uneducated gut feeling tends to be the primary way that triggers decisions and that, I find extremely dangerous for our world.

In order to “stay out of trouble” I have only one piece of advice: always ask yourselves the question “does this makes sense” and if the answer is no, then stay away.

Yes, things … people…. Have a value as long as someone decides to pay whatever is the asking price but in the long term, even those reckless buyers will end up seeing through the smoke and mirrors. This behaviour of ours, is also a part contributing to the high levels of inflation we are noticing today. If we always accept paying the asking price for any b$£#@it story, without checking if "it makes sense", we will end up counting massive losses in our pockets and hearts perhaps.

Invest or spend your money, time and feelings wisely!