In a competitive market, the investors make a tiny amount of profit. Suppose widgets cost $100 to make. All widget buyers always choose the cheapest widget. If you start selling them for $200, someone else can undercut you by selling them for $180. The only equilibrium is selling widgets for $102 or something. Just enough to make a slim profit, but not enough for anyone to try undercutting you. Of course, if you and you alone have a way to magic widgets out of nothing, then you can make fat profits. This is roughly how a lot of markets work. Its why there are commodity prices, and those making commodities have slim profit margins.
Note that it is easy for investors to loose money by being stupid. And they can potentially turn a large profit if they are a unique source of exceptionally good info. They just can’t turn a large profit in a large pool of similarly competent investors.
The investors have skin in the game, and as long as the investors maximize money, the system should work. The problem is that if people are prepared to burn their own money, they can burn other money with it. (Ultimately meaning some charities get less funding if the silly money gets added in the wrong place than if the silly money had just directly burned their cash at home)
In a competitive market, the investors make a tiny amount of profit. Suppose widgets cost $100 to make. All widget buyers always choose the cheapest widget. If you start selling them for $200, someone else can undercut you by selling them for $180. The only equilibrium is selling widgets for $102 or something. Just enough to make a slim profit, but not enough for anyone to try undercutting you. Of course, if you and you alone have a way to magic widgets out of nothing, then you can make fat profits. This is roughly how a lot of markets work. Its why there are commodity prices, and those making commodities have slim profit margins.
Note that it is easy for investors to loose money by being stupid. And they can potentially turn a large profit if they are a unique source of exceptionally good info. They just can’t turn a large profit in a large pool of similarly competent investors.
The investors have skin in the game, and as long as the investors maximize money, the system should work. The problem is that if people are prepared to burn their own money, they can burn other money with it. (Ultimately meaning some charities get less funding if the silly money gets added in the wrong place than if the silly money had just directly burned their cash at home)