Entries Tagged 'Finance' ↓

Risk VS. ROI – Real Case Study On The Works

I must admit, when I read Quadszilla’s post about financing an internet acquisition, I felt the same way most of the people who commented on the thread did.

Why would an investor be interested on a 13% – 18% annual return in exchange for a loan to finance an internet acquisition. As Quadszilla stated, the risks are there:

Obviously, there are risks involved; the market for the services could collapse, a new competitor could spring up and take away traffic, or Google Could just give us the Flaming Finger and take away half the site’s traffic overnight.

At this moment in time NZD Monthly Fixed Term Deposits are giving investors a return in the range of 6% to 8% annual. Note I said monthly deposits, so grab that formula to calculate the compounding for the whole year. Just ask your account manager, and give him some shit for not warning you about this a couple of months ago. It’s not a good time be on assets. You need to be on cash (and not USD)

Anyways, another example: check out these currency linked deposits and their returns.

Risks involved? Of course, you could purchase NZD right before it looses value against USD and then you are either stuck with it or need to take a loss to get back to USD.

That is the risk. But it is not likely to happen due to NZD’s constant fluctuation caused among other things by the carry trade and Yen speculation. Check out these graphs and make up your own mind. On a world where the price of commodities keep driving economies based on the export of primary sources such as those from New Zealand and Australia, and a correction needs to occur in the US Real Estate and Finance Markets, I think it is a good idea to bet against the USD.

In other words, if you stay on USD, your money will be worth less in terms of international spending power.

All this said. You can guess where I would invest my money to get a comfortable 10% return per annum. I don’t think raising returns another 8 points justifies the risks involved in any internet venture.

On the other hand, I really respect Quadszilla and he obviously knows what he’s doing. Despite all this analysis, I would be happy to invest money on any of his projects if he guarantees that he is going to run them personally.