Broker Check

Weekly Perspective

IS A ZEAL OF ZEBRAS A BETTER INVESTMENT THAN A BLESSING OF UNICORNS? 

Collective nouns are the names we use to describe collections or significant numbers of people, animals, and other things. The Oxford English Dictionary offered a few examples:

• A gaggle of geese
• A crash of rhinoceros
• A glaring of cats
• A stack of librarians
• A groove of DJs

In recent years, some investors have shown great interest in blessings of unicorns. ‘Unicorns’ are private, start-up companies that have grown at an accelerated pace and are valued at $1 billion.

In early 2018, estimates suggested there were approximately 135 unicorns in the United States. Will Gornall and Ilya A. Strebulaev took a closer look and found some unicorns were just gussied-up horses, though, according to research published in the Journal of Financial Economics.

The pair developed a financial model for valuing unicorn companies and reported, “After adjusting for these valuation-inflating terms, almost one-half (65 out of 135) of unicorns lose their unicorn status.”

Clearly, unicorn companies must be thoroughly researched. There is another opportunity Yifat Oron suggested deserves more attention from investors: zebra companies. Oron’s article in Entrepreneur explained:

“Zebra companies are characterized by doing real business, not aiming to disrupt current markets, achieving profitability and demonstrating it for a while, and helping to solve a societal problem...zebra companies...are for-profit and for a cause. We think of these businesses as having a ‘double bottom line’ - they're focused on alleviating social, environmental, or medical challenges while also tending to their own profitability.”

Including both types of companies in a portfolio seems like a reasonable approach.

If you were to choose a collective noun to describe investors, what would it be? An exuberance? A balance? An influence?