J.P. Morgan, the titan of American finance, was once asked by an admirer how he accumulated his vast fortune. Had he been a man endowed with a Chinese sense of humor, he would’ve said: “I worked very hard……and then my father died and left me his company”. Instead, he offered the eternal truth: “buy low and sell high”.
This, of course, is the only way to make money. But what Morgan didn’t say was how to determine when to buy and when to sell. Morgan had the advantage of being the lord of finance during an era when insider trading was not only legal, but also expected and accepted.
Others do not have it as either. Recently we’ve found out that even men as sharp as a billionaire investor or the former head of the McKinsey need extralegal means to chase profits. These scandals and others and validated something that economists have long been saying: Nobody knows anything, not even the economists. In fact, one of the basic principles of modern investing is that the market cannot be timed without the extra help, and investors who believe otherwise usually make much less money.
With this in mind, we can now take a look at Lashou.com, the Chinese group buying site that has been denied a chance to raise money on the American stock market. Many of Lashou’s management and staff are also jumping ship at an alarming rate, with the most recent one being one of the site’s founders.
Group buying was supposed to be a business model that actually makes money. But with a Gold Rush Mentality that focuses on gaining market share instead of making money, most of these sites are bleeding money. Lashou perhaps is the epitome of this trend, as it spent big to hire Ge You, easily the biggest star in China, to become its spokesperson, and then plastered his face all over town to gain recognition.
Splurging money like this is not necessarily a sin, especially during the best of times, when VC’s spigot is turned on full tilt. However, a broken clock can only be right twice a day. As the wheel of fortune turns, the best of times will always be replaced by the worst times, when you can’t another nickel.
Lashou’s entire strategy was based on the assumption that the best of times would last, at least until it has raised enough money from the public. Since this strategy failed, we do not know if Lashou has a vision for long term gain or it’s just a short term get-rich-quick scam to bilk money out of investors. But the evidence is undeniable: Lashou tried to time the market and failed.
Is there another way to make money? As unbelievable as it sounds, yes, you can grow big and not lose as much money as Lashou. Ctrip.com had 5 million dollars in initial investment and started to make profit in its third year. Even with its profit thinning and stock pricing touching record low, it’s undeniable Ctrip’s core business makes money, if not as much as it used to or as much as the investors expects. Only a business that makes money could survive through thick and thin, with no need to time the market. Lashou’s strategy is at best a gamble that works, at worst nothing more than smoke and mirrors.