Risk
Expected Utility vs Prospect Theory
1. Bernoulli’s Utility Theory (Expected Utility Theory) Example: A person will prefer $10 for sure over a 50% chance of $20 because the utility of $10 is greater […]
EON Investment Insights
Understand stock price as a forecast
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Real Estate Development
Planning Fallacy
Delays in construction projects and massive budget overruns appear to be not just a Georgian problem. Daniel Kahneman, in his book Thinking, Fast and Slow, refers to this […]
Real Estate Development
What Creates a Housing Bubble?
In the construction-development sector, bubble formation can be stimulated by various factors, but I want to highlight two key systemic factors here: 1. The bullwhip effect, and 2. […]
Real Estate Investments
Indexed & Adaptive Rents
When leasing real estate through long-term contracts, there are two interesting practices that private investors often overlook: indexed and revenue-linked rent. Indexed Rent Indexed contracts provide a hedge […]
Real Estate Development
Real Estate Sales Driver
The main formula that stimulates real estate investment is as follows: Since real estate can be acquired with high leverage, there is an opportunity for significant returns on […]
VC Valuation
The Game Theory & Real Options
Game theory is a fascinating and complex discipline that requires years of study to master. Here, I’ll cover the main directions and strategic insights, and finally, upload Excel […]
Derivatives
Binomial Trees
The appeal of valuing both financial and real options using binomial trees lies in their ability to evaluate more complex and nuanced situations. The Black-Scholes formula has many […]
Investor Psychology
Sell in May and go away
Among investors in the securities market, there’s a saying: “Sell in May and go away.” Below is some supporting data, but what causes this? The chart below shows […]
VC Valuation
R&D Valuation
From the perspective of evaluating innovative projects, the model for releasing a new drug is very interesting. The process is fully regulated by the government, as neither the […]
Derivatives
Value of Option
Financial options are equivalent to “the right to choose,” and they have their specific, calculable value… Besides financial options, there are real options, whose identification, creation, and utilization […]
Growth
Representativeness in Growth Forecasting
Representativeness can heavily influence investor decisions and analyst forecasts. This cognitive bias leads us to assume that past performance will persist, making it a common source of error […]
VC Valuation
Valuation of Real Options
The valuation of real options can be approached in the same way as financial options, though the main issue here is finding the correct discount rate. To remind […]
VC Valuation
Post Money Valuation (Implied)
The term Pre & Post-money valuation used by venture investors often communicates inadequate numbers. Besides causing legal and tax-related issues, it also creates unrealistic expectations for Limited Partners. […]
VC Valuation
RE Binary Call Options
Imagine offering startup employees an additional incentive: you’ll pay them another $5 million if they manage to increase the company’s value, which is currently $40 million, to $200 […]
VC Valuation
Next Round Preferred Investments
Formulas for valuing options tied to preferred investments become slightly more complex with each subsequent investment round. What needs to be considered here: Exit diagrams are naturally built […]
Growth
Implied Growth Rate
What mistake might you make when replicating someone else’s portfolio? There’s a strong temptation to buy a stock that’s in a famous investor’s portfolio. Why not? Bill Ackman […]
VC Valuation
Valuation of Preferred Investment
The technique for valuing Random Expiration Callable Options (RE Calls) is used to assess the special conditions or options generated by a startup’s financing contract (link). Here, I […]
VC Valuation
Random Expiration Call Options
When we described the use of the VC method by venture funds to make investment decisions in a startup, the model was solely about the investment decision (VC […]