Crowdfunding in the crosshairs?
AKA shocks, regulation, fallacy of ‘5 sigma’ events & Crowd-Funding:
- Q: If ‘five sigma’ events should only happen 1 in 3.5m times, why are they so frequent?
- A: Because there is no normal distribution.
- A: And we suffer from over-optimism, wilful blind spots, call it what you will.
- A: And regulators, politicians etc. may interfere, they may not have read the script.
- A: And there may be a lemming-like belief that the worst can never happen.
Yet it not-infrequently does – cases below happened just this week in just this sector:
- CFD (betting) operators were hit Monday when legislation was proposed in the UK
- They were clobbered again when similar moves kicked off in Germany
- UK domestic betting companies fell when FOBT restrictions were proposed
- Asian gaming stocks fell when ATM daily limits in Macau were rumoured
Learnings:
- Betting stocks are friendless when it matters. But that’s enough about them.
- Also friendless when the chips are down, may be some other ‘disrupters’
- Remember politicians may grandstand & punters have votes, companies don’t.
Lateral Thinking – Implication for Crowd-Funding etc.:
- The FT suggests P2P lending & crowdfunding (here) may be curbed
- It says there is ‘evidence of consumer detriment’.
Small (but consistent) consumer losses will still prompt investigation:
- Lotteries (small bet, extremely long odds) are heavily-regulated.
- There is evidence that punters will pay the same for 1/10k or 1/1m odds.
- Crowdfunding features crazy valuations, lack of liquidity, unclear exit routes, risks etc.
- Customers & punters (a.k.a. ‘investors’) may therefore ‘need saving from themselves’
- And politicians like to tinker so take a step back, fault the logic
- Legislation may be on its way. It may even happen before the first high-profile failures…