Most days at 11 a.m. we have a conference to go over the economic and financial news, investment ideas, and discuss client portfolios that need attention. Today someone brought up a dazzling new bionic hearing aid that is operated through an app on one’s smart phone. No more fiddling with inoperably tiny buttons on the hearing aid itself. Instead, you can easily use the app to increase or decrease volume, change pitch or filter out background noises. There’s no need to discuss the wizardry any further, at least not now, because we could not find a public company that makes the product. And this fact brings me to the point of today’s comment: you often cannot find a way to participate in a great new idea. Usually the new product or service comes from a private company (a private company does not sell stocks and bonds to the investing public on a government-regulated market) or it comes from a public company that is so big that the success of the new device would have little effect on its stock price.
Although there are successful private equity investors, we forgo investing in private companies with an exciting new product, like the bionic hearing aid. We stay away from private equitydeals because it is hard to figure what price is “right,” particularly for a generalist investor, and because it is often impossible to get out if the exciting idea proves flawed, which is frequently the case. And so we generally do not get a “pure play” on a great new idea, like the bionic hearing aid. On the other hand we stay out of the graveyard of private equity deals gone bad.