The financial markets have long recognized the potential of unlisted companies, and investors focused on these assets are called private equity investors. There’s an unimaginable number of these debt-leveraging, value or quality investing PE funds just in the European markets. In Europe, private equity investors also have a genetic peculiarity of being quite security-oriented, so Röko’s market is a true (blood)red ocean where you have to work tirelessly to achieve even mediocre returns.
Normally, in private equity, a fund’s life cycle is a maximum of ten years, which is enough time to improve the management model and business quality of acquired companies and maximize the buyer’s impact and thus return, also aligning well with the investment horizon of an investor investing in these assets.
At Röko, the goal is to own forever, which admittedly can be beneficial if you identify as a pension fund and your investment horizon is also eternal. Is it? I argue that a typical Röko investor does not benefit from such an ownership philosophy in any way, and I’ll add that few investors even have personal experience of what, for example, a significantly shorter 10-year stock ownership means and what kind of drastic ups and downs can occur during such a period for a single holding.
Investors usually get into funds and stocks as ‘long-term owners’ until those two or three bad years in a row come along (when one should, of course, increase ownership), after which trust in management is lost, and money is pulled out. This is how investors have always acted and always will act. Unlike in PE funds, Röko’s continuous stock liquidity is a huge minus because it unfortunately enables poor timing and thus the destruction of one’s own investment returns.
Liquidity also brings other problems for the investor. While in a conventional PE fund, only the acquirers need to be scrutinized carefully, Röko has taken a leap in difficulty because that alone is not enough. Mr. Market also steps into the boxing ring, who relatively efficiently assesses the correct stock price based on the team’s past performance and the companies’ future prospects. Furthermore, the more attractive the business model and story Röko has, the more you have to pay for them in the stock price. Of course, with decades of ownership, the impact of the purchase price is effectively neutralized, but that does not save ‘fair-weather Buffets’ investing in the shorter term.
So, in my opinion, those investing in this should just switch directly to a private equity fund if they want similar exposure to that market and asset class, thus avoiding those pitfalls and freeing up time spent monitoring stocks for other projects. The fee structure in those is often perceived as salty, but Röko’s founder also has a history of compensation disputes, and therefore, they will certainly ensure in the same way that too much benefit from the created added value does not flow into the wrong pockets of small investors.
I see the greatest benefit of Röko and other similar companies in the sector for jaded stock pickers who no longer have the energy to spend hours sifting through stocks and making difficult choices and therefore want to outsource that company digging to another person and become passive to enjoy the appreciation of a long-term, thoughtful owner with a well-diversified portfolio. In their own mind, they can then convince themselves that the person staring back from the mirror in the morning is a ‘stock picker’ and not a ‘fund investor’.
Now that I have written about Röko in this tone, the reader has probably formed an incorrect impression that I consider this a bad investment. Indeed, Röko easily beats a typical Finnish investor’s dividend-muddler investment due to its serial aggregator logic and target market, but at the same time, as an investment idea, it is irritatingly aggressively mediocre.
