Saturday, July 12, 2014

"The secretive billionaire who built Silicon Valley"

Hmm:

"Given the Valley’s ever-escalating prices, how much more potential upside is there? Arrillaga, those close to him say, believes the climb has much further to go. The demand is now coming overwhelmingly from businesses like Google, Apple, and LinkedIn–huge tech companies that are expanding their businesses and increasing employee headcounts, pushing the companies into a continual hunt for space. They are making gigantic bets on expansion in a way the developer (again, to hear colleagues tell it) has never witnessed, even during the 1990s dotcom boom."
It's hard to stay objective about a pattern of economic activity that is hugely beneficial to you, personally.

3 comments:

Unknown said...

It's hard to stay objective about a pattern of economic activity that is hugely beneficial to you, personally.

IMO this shows the limitations of incentives. You can have great incentives that minimize agency-principal conflicts, but agents will still make suboptimal decisions if the market gives them constant reinforcement for thinking a certain way. I keep that in mind whenever I hear someone talk about how an "outsider CEO" is "incentivized" to create shareholder value because he owns 30% of his company's stock.

In Arrillaga's case, he started out as a spec builder, so he must have been really optimistic to begin with, and the market has only reinforced that optimism. As you said it would be tough for him- or anyone, really- to stay objective.

CP said...

How does no one else see how unscientific the outsider book is?

Josh H said...

I haven't read it but agree with you CP. A friend of mine told me the other day that the way to make really big money is to be in real estate commercial development. I couldn't help but think that you just don't hear about all the developers who went bust, only the ones that did well.