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Ask HN: Why not invest in random companies and hire random employees?

7 points by baron816 ↗ HN
Planet Money aired a story yesterday about how Nigeria essentially handed out free money to random businesses: http://www.npr.org/sections/money/2016/05/20/478883658/episode-702-nigeria-you-win

It's still too early to determine if the program will be successful in the long term, but early results are that it's been a lot more effective a creating jobs than any other traditional jobs program.

This got me thinking: not only should someone (YC maybe?) try this with startups in the US, but companies should also do something similar with employees.

Using a random sample would allow companies to determine if their hiring practices are really effective at all or just a waste of time. It would also eliminate any biases from the hiring manager.

We know that stock picking isn't any more effictive than random chance (that's the theory behind index funds). Maybe the same is true for investing in startups and hiring employees.

8 comments

[ 8.1 ms ] story [ 31.6 ms ] thread
green_lunch
99% of the new companies I see on HN and elsewhere have either no business plan or a company that will most likely fail. Randomly investing in these companies without any actual effort to mitigate risk, will result in throwing most of your money away.

For employees, it's the same thing. It's all about risk and determining if the employee can do the job and be a good fit for the company.

"We know that stock picking isn't any more effictive than random chance (that's the theory behind index funds)"

If this were the case, why aren't index funds comprised of startups and penny stocks? Index funds are usually comprised of stable companies that have an excellent track record. This means it's not random.

"Maybe the same is true for investing in startups and hiring employees."

It's not the same for stocks and it's not the same for startups or employees. You need a way to filter.

Did you read the article?

This is at the bottom:

"They'd hold a massive nationwide contest. They'd give out piles of cash like nobody else had before. And Lariat was in."

It appears they have a contest, which means it isn't random. It's a process to mitigate risk.

baron816
Yeah you could filter out obvious losers and scammers. Then hold a lottery with the rest.

Penny stocks end up in some index funds. Startups aren't publicly traded. But ideally, you want your portfolio to composed of every type of asset.

drogo
You say:

"We know that stock picking isn't any more effictive than random chance (that's the theory behind index funds)" If this were the case, why aren't index funds comprised of startups and penny stocks? Index funds are usually comprised of stable companies that have an excellent track record. This means it's not random.

I think you are getting the idea wrong. The point is that in a liquid and efficient market like the stock market the price will reflect all available information on the company and you should not expect anything more than random returns. In the case of startup there is no price, and in most cases the price is likely to be zero.

Zelmor
Any government doing this are not wsdting their own money, but the money of their taxpayers. Or in Nigeria's case, other countries' aid money. It is a desperate attempt, but I guess they are out of ideas. Also, this way a lot of government officials, their wives, friends, family and their dog can apply for business aid. Dream of anyone out for themselves, really. Corruption at its best I say.
baron816
The program was designed to avoid corruption. If they had a committee choose, they would have chosen their cronies. By setting up a lottery, they money goes to people without special connections.
Zelmor
Because noone has ever rigged a lottery, right?
kiloreux
well I was waiting for that discussion for too long, our country (Algeria), started a similar program that gives til 100k in USD for young people under 30 to start new business, and they handed so much money without real evaluation of business plans on the long term, while really few succeeded, some people used the money to buy nice cars and have luxury life, it was such a waste of public money, the economy still sucks most of it depends on oil industry and nothing have changed now, except that people are in debt for the government now, the thing is that government started this after the arab spring in other countries, so it could calm down angry people.
sharemywin
I'm working on a platform where people can contribute to projects part time and build equity. Not quite the same thing but I think it's a way for more people to get out from under the capital trap. And there won't be a lot of random hiring requirements.