The Ponzi-Scheme, Musical-Chairs Investment Model Re-Imagined As An On-Line Game
Las Vegas, Draft Kings, Are You Listening — This Could Be Your Next BIG THING
By David Grace (Amazon Page — David Grace Website)
Estimating The Break-Even Sales Volume
A company seeking additional investment should be giving the proposed investors (or including in its SEC filings) sufficient information for an experienced accountant to be able to create graphs of projected
- Total costs over a range of sales volumes and
- Gross receipts over that same range of sales volumes
so that the investor can see the level of sales volume where the gross receipts line is projected to exceed the total costs line, that is the volume of sales the company projects it will need to achieve in order to break even.
The Fundamental Investor Questions
The investor should then be able to compare that break-even level of unit sales with the company’s current level of unit sales, and based on the investor’s estimation of the size of the market and competition from other sellers estimate
- If it is likely that the company will ever be able to reach that break-even level of unit sales,
- If the company will be able to reach that level of unit sales without having to reduce its prices or incur additional marketing costs which will reduce its gross profits and thus increase the estimated break-even level of sales volume
- How long it will likely take the company to reach that break-even level of unit sales.
- How much money the company will lose between now and then, that is, how much additional capital the company will need to raise in order to keep it out of bankruptcy until it finally becomes profitable
Essentially, will the company ever be profitable, and if so, how long will that take, and how much additional money will the company need to raise in order for it to reach that break-even point?
Applying Those Questions To A Real Company — Lyft
Just for the fun of it, let’s apply those questions to Lyft.
- At its current prices, will Lyft’s Gross Revenue line ever cross its Total Costs line?
- If that will happen, at what volume of millions of passenger miles will that be?
- How many months/years will it take Lyft to achieve that volume of millions of passenger miles?
- If that will ever happen, how much additional investment will Lyft need in order to keep it out of bankruptcy between now and then?
- Is it likely that Lyft will be able to raise that much additional capital over that period of time?
Of course, these sorts of questions are only asked by the class of investors that cares if the company they are funding will ever be a successful business.
The Ponzi-Scheme, Musical-Chairs Investment Model
There’s another category of investors who don’t care whether or not the company’s business model is built on quicksand. These are investors who adhere to the Ponzi-Scheme, Musical-Chairs Investment Model.
Their principal concern is whether the company will be able to project enough sizzle, flash and excitement to have a successful IPO and survive long enough thereafter for them to be able to sell their shares at a material profit before the music stops, i.e. before the company runs out of cash and new investors and finally goes broke.
But doesn’t it seem to you that finding a target company, investing all that money, processing all that paperwork and then waiting all those years to sell your stock to others is an unnecessarily long, complicated and expensive way to make a multiple return on your risk capital?
I think there may be a way to shorten that time frame to less than a week!
Accelerating The Musical Chairs Investment Model — Musical Money, The Investment Game
Yes, I’ve come up with an easier, faster way to implement the Musical Chairs Investment Model. I call it: Musical Money, The Investment Game.
Here’s how Musical Money works.
The Rules
Duration
Each game’s duration is a random number of hours between 2 and 100.
Purchase Price
Game tokens (Investment Shares) can be purchased in any volume at a price of $1/share TIMES the number of hours since the game started.
Sales Price
Shares can be sold at any time at a sales price equal to the original share purchase price PLUS 10% TIMES that share purchase price TIMES the number of hours since the player purchased their shares BUT subject to the game limit.
The Game Limit
The game limit is the total amount of money paid into the game as of the time of any sale.
If there are insufficient funds at any time to make a full payout to all selling shareholders then 95% of the funds remaining at that time will be paid out on a prorata basis to all selling shareholders and the game will be declared over at that point.
5% is retained by the House as its fee for running the game.
Timing Of Purchases & Sales
A purchase or sale at any time in the first 30 minutes of an hour is recorded as being at the beginning of the hour. A purchase or sale at any time in the second 30 minutes of an hour is recorded as being at the beginning of the next hour.
Purchases and sales in the first 30 minutes after the start of a new game are recorded as being in hour zero.
Timing Of “Game Over”
Game Over is announced at the beginning of the hour chosen by a random number drawing at the beginning of a game.
The announcement of Game Over is deemed to have occurred before processing any sell orders for that hour.
When the game is over all unsold shares become totally worthless.
Examples Of Purchases & Sales
Purchase In Hour Zero Example
If you bought 90 shares within the first 30 minutes after the start of a new game you will be deemed to have bought them in hour zero and your purchase price would 90 shares X $1 = $90
If you sold your 90 shares in hour 90, your sale price would be 90 hours (90 –0 ) X 10% = 9 X your $90 purchase price = $810 + your original $90 purchase price = $900 — a 10X return
Purchase In Hour Thirty Example
If you bought 3 shares in hour 30 your purchase price would 3 shares X 30 hours X $1 = $90
If you sold your 3 shares in hour 90 your sale price would be 60 (90 — 30) hours X 10% = 6 X your $90 purchase price = $540 + $90 your purchase price = $630 — a 7X return
Purchase In Hour Ninety Example
If you bought 1 share at hour 90 your purchase price would be 1 share X 90 hours X $1 = $90
If you sold your 1 share at hour 95 your sale price would be 5 hours X 10% = .5 X your $90 purchase price = $45 + $90 purchase price =$135 — a 50% return
Game Over
If the random number of hours in this particular game was 83 then all these players would have lost all their money. At Game Over, all money not previously paid to shareholders when they sold their shares goes to the House as its fee for running the game.
In this version of musical chairs it doesn’t matter how many people are playing the game nor how many chairs there are. It only matters if you’re still in the building when the music stops.
Kind of like a Ponzi Scheme. Those who haven’t cashed out before Madoff gets carted off in handcuffs take it in the shorts.
Get it?
— David Grace (Amazon Page — David Grace Website)
