Asymmetries and Parking Matters
#62 Angelinvesting.it - From idea to Series A - Weekly Newsletter
Dear reader,
Let me return to the old format for a story that I'm eager to tell you.
Every time you park in Chicago, the parking money goes to the sovereign wealth fund of Abu Dhabi. It was the year 2008, and the city, in the midst of a financial crisis, needed money. For $1.1 billion, it sold the right for 75 years to collect the proceeds from 36,000 parking meters scattered throughout the streets of Chicago that citizens use to pay for parking.
15 years have passed, and the sovereign fund has already recouped its billion dollars and has recorded a profit of $500 million, and, the cherry on top, the fund still has 60 years of cash flows to collect.
Here are three reflections that this story has sparked in me that I want to share with you.
If you look at the investment over time and calculate the internal rate of return (IRR), the return is about 10.7%. A good return, but not stellar.
Lesson 1: With investments having an IRR between 10 and 14%, you can build fortunes.
What risk is there that people stop paying for parking, that cars disappear from the streets, that all the meters are vandalized? None or very low, and in any case, not for the near future. The market has asymmetries, returns with double-digit IRRs, and very low risks.
Lesson 2: Spending time finding asymmetries is a good allocation of time.
The return seems stellar, but if you calculate the IRR for houses bought on average in America in the 70s with a 20% down payment, you will find that the IRR is in line with the investment of the Abu Dhabi fund.
Lesson 3: Inflation is eating your money now without you noticing.
I hope you'll forgive the digression to the old style, but this story made me reflect a lot, and I wanted to share it with you.
2 Tools to advance to pro
The Best Guide to Managing the First Hires for Startups by Brie Wolfson. Check it out
Investing at an early stage is an art & science. Ben Yoskovitz has been doing it for 12+ years. Here's a list of 16 questions organised in the Desirability, Viability, Feasibility framework. Check it out
1 Reason to smile
The future is already here and dogs don’t seem to appreciate.
Have a great weekend,
Simone
—
Want to read more: click here
Want to invest with me: click here
Want to share a deck: click here