Here’s a fun fact: you’re probably already an investor in private markets.
Even if you’ve never heard of a “General Partner,” if you have a pension fund or an insurance policy, your money is likely being funneled into private companies. Big institutions like banks and pension funds take the premiums we pay and invest them in non-listed companies to get better returns.
We usually think of the USA as the birthplace of modern finance. But when it comes to venture capital, the story has a very French twist.
We all like to think we’re smart. If we didn’t think we were going to make money, we wouldn’t invest. But here’s a cold splash of water: 93% of American drivers think they’re “above average.” Mathematically, that’s impossible.
Welcome to Part Four of Wilmott’s book: Credit Risk. Up until now, every product we priced assumed that all cashflows are guaranteed. Coupons get paid. Bonds get redeemed. Nobody goes bankrupt. That was a comfortable world to live in, but it is not reality.
You know that feeling when you buy a stock right after seeing a scary headline, and then two weeks later you wonder what you were thinking? That’s a perception bias doing its work on your brain.
We’ve talked about history, but let’s get into the real engine of private equity: the entrepreneur.
Cyril Demaria makes one thing very clear: without entrepreneurs, private equity has no reason to exist. The entrepreneur is the one who takes a bunch of separate pieces—time, money, ideas—and turns them into something way bigger than the sum of its parts.
Theory is nice. But at some point you have to price actual products that real people are trading. Chapter 38 of Wilmott’s book takes two interesting fixed-income contracts and walks through how to price them from scratch. No hand waving. Just the math, the logic, and even the code.
Continuing our deep dive into Chapter 1 of Tim Richards’ “Investing Psychology.” Last time, we talked about how our senses lie. Today, we’re looking at why we think we’re in charge when we definitely aren’t.
You know that feeling when you lose a $20 bill on the street? It ruins your whole afternoon. But finding $20 on the street? Nice, sure. You smile for maybe five minutes and forget about it.
We saw how Christopher Columbus was basically a 15th-century startup founder. But for private equity to become a real industry, something big had to change. We needed a shift from “kings and queens” to “partners and contracts.”