Some investors buy the launch. I check the Balance Sheet.
I will never become a billionaire.
I can say this without hesitation because I simply won’t.
The reason I can say this is that when I look at building a business, or investing my money, my first question is usually, “what are the assets that the company has?”
I don’t ask first about the idea.
I don’t ask first about the plan.
I ask about the assets.
The things the company owns.
To me, a company without enough real assets does not have a strong enough foundation. Other people can look at a company and see a future market, a platform, a network effect, a brilliant founder, or a story that may become true if enough people believe in it.
Some people, like Jeff Bezos, can put a few servers in a room, sell books online, and then sell people on the larger idea. I looked at Amazon when it first went public, looked at the assets, and put my money somewhere else.
That is why I will never become a billionaire.
I just don’t have what it takes.
Elon Musk has just raised $75 billion for SpaceX. The public offering priced at $135 per share. On the first day of trading, the stock reached about $175 before falling back to around $160.
The reported book value before the offering was about $2.35 per share. After the offering, the $75 billion raised goes into cash and owner’s equity, and the book value rises to roughly $7.35 per share.
That is still a long way from $135.
It is an even longer way from $160.
I understand paying for ambition. I have more trouble paying over $150 above book value for ambition that still arrives with cratered prototypes, heroic assumptions, and a business model that requires the future to keep arriving on schedule.
SpaceX does have assets. It has rockets, satellites, launch facilities, contracts, manufacturing capacity, intellectual property, experience, and regulatory position. I am not saying there is nothing there.
I am saying the assets I can count do not come close to explaining the price I am being asked to pay.
There is also the ownership structure. Elon Musk does not need to own most of the economic shares to remain in control. If he keeps overwhelming voting control, then public investors are not buying a say in the company. They are buying a financial interest in a company controlled completely by someone else.
That may be fine.
It may even work brilliantly.
But it is not how I invest.
My rules for investing are simple.
First, does the company usually make money?
If no, I usually do not invest.
That eliminates SpaceX for me.
Second, does the company have enough assets to keep making money if conditions get harder?
If no, I usually do not invest.
SpaceX may have remarkable assets, but at this price, I do not see enough of them.
Third, do I like the company?
Usually I treat this as a customer service question. I drop into the store. I call the customer service line. I visit the website. I see whether I am treated as important to the company.
If I feel that the company treats me as important, then I think there is a good chance it treats other customers as important too.
Other customers notice that.
Other customers come back.
These three rules have made investing fairly straightforward for me.
For the first rule, I usually look for a company with a price-to-earnings ratio around 15.
For the second rule, I prefer the share price to be no more than about twice the book value of the company.
For the third rule, I want some direct evidence that the company cares about its customers.
These rules work for me.
They will not make me a billionaire.
Have I said that enough?
They have, however, helped me build investments that are mostly successful and have given me a decent nest egg for the future.
Jeff Bezos and Elon Musk are not people I aim to emulate. I will never be like them. That is not false modesty. It is a recognition of temperament.
They can look at the future and see something worth billions before the assets are there.
I look for the assets first.
That means I will miss some spectacular opportunities. I have many times.
It also means I avoid many spectacular disasters.
That works better for me.
It will not make me a billionaire.
It has, however, let me sleep.
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