real-time quality measures
real-time quality measures
As an investor when we're considering a new brand, we want to know something about how established the brand is, and something about how established the market supporting the brand is. Popular Equity uses measures of past trades and input signals from all users to give running estimates of our estimates of each. The 3 signals we track are:
Market diversity
Brand validation
Turnover ratio
Intuition
In this context, market diversity means the organic spread of ownership. A brand that's highly concentrated in a handful of investors will have low market diversity. And brand validation means the consistent validation that this brand is really about what it says it is.
The turnover ratio is an estimate of what fraction of the the 20% investor ownership has been sold in the last year. A low turnover ratio means that no one is selling, and the brand is accumulating new investors. A high turnover ratio means many/most of the investor ownership is changing hands during the last year.
An ideal market for many listings will be when there's ongoing growth (with a good multiple to cash) and enough turnover ratio to be sure that investors know what the market will bare on the sell side. A listing with a higher turnover ratio means that people are actively buying and selling, so we might have more confidence in the market's current estimate for the overall valuation.
Initialization
By definition all listings start with low market diversity and low brand validation. Our estimates for both are provided as real numbers between 0 and 100. These numbers are compressed by sigmoids that transition at 50. So it can take a less evidence to move an estimate from 5 to 10, than to move a number from 90 to 95. We continually update these estimates given all the information we have (about this brand including ownership, trades, page views, reviews, and responses to questions, etc.).
Similarly, during the initial cash stage, all listings start with a turnover ratio of 0. While in initial cash, will have turnover ratios above 0, if/when initial investors ask for their investments back.
Low numbers?
Low brand validation and low market diversity scores do not necessarily mean that we see evidence of foul play. They're intended as a caution to the investor to make sure that you know this person is a legitimate artist or nonprofit, and more generally, that this listing isn't a form of market abuse. If you were at the show, and by checking the links you know this is the right musician, then the low numbers likely mean that you're one of the first investors. As a site, we haven't had enough users validated this brand for us to give it a higher number. As an early investor, you have an opportunity to get in early.
Similarly, a low quality measures for long-existing brands could simply mean that this isn't yet a popular artist or nonprofit. A lot of these things have a long slow ramp. Again, in those cases, it's up to you as the investor to be sure that you're really supporting a legitimate brand that you know has value.
Brands with low quality scores can lead to more automated questions for users, and to explicit Popular Equity investigation. Brands that can't be validated typically don't support market values much above the cash that's gone in. In the cases where there's evidence of abuse, brands can be de-listed, and cash may be held to first determine any criminal wrong-doing before distribution.
Contact: quality@popularequity.com