[geeks] Re: (Almost nothing to do with )Carley Fiorina

[Gregory Leblanc]

On Tue, 2002-12-03 at 14:38, Greg A. Woods wrote:

> [ On Tuesday, December 3, 2002 at 05:53:35 (-0800), Lionel Peterson
> wrote: ]
> > Subject: Re: [geeks] (Almost nothing to do with )Carley Fiorina
> >
> > --- "Greg A. Woods" <woods at weird.com> wrote:
> > > 
> > > [ On Monday, December 2, 2002 at 20:27:43 (-0800), Lionel Peterson
> wrote: ]
> > > > 
> > > > --- "Greg A. Woods" <woods at weird.com> wrote:
> > > > > 
> > > > > [ On Monday, December 2, 2002 at 20:27:43 (-0800), Lionel
> Peterson wrote: ]
> > > > > > 
> > > > > > You really seem to be talking about bonds, not stocks...
> > > > > 
> > > > > I suppose it depends on how you define each term.  If a bond
> buys
> > > > > stock in a company then what is it?  (yes I'm purposefully
> > > > > fuzzying up the terms here -- I don't want to discuss these
> > > > > issues within the confines of the current terms of reference
> > > > > used by the financial community :-)
> > > > 
> > > > A bond is a financial instrument that allows an individual to
> > > > assume some risk with an investment, and to be rewarded for that
> > > > risk with a "guaranteed" rate of return.
> > > 
> > > Now there you go again.  Didn't I just say I'm purposefully making
> > > the terms fuzzy here because I don't want to discus these issuess
> > > within the very narrow (minded) confines of the current
> definitions
> > > used by the financial community?
> > 
> > Greg - you asked me how I define "bond", or at least based your
> > reaction to my statement on how *I* defined each term... I tried to
> > give you my definition for one term, and you jumped up and down
> about
> > it... Please believe I was not trying to provoke or upset you - I
> was
> > attempting to discuss an idea with you. 
> 
> OK, well I guess I can see how you could interpret my rhetorical
> question as a desire to learn your definition of the term.  However my
> intent was to go back to your statment positing that I was talking
> about
> bonds and not stocks.  I.e. the intent of my rhetorical question was
> to
> show that I was talking only about the generic investment of capital
> funds into businesses such that the business has the cash to operate
> and
> that in return the business will pay some kind of return _and_ that
> the
> original investment can also be repaid, or sold to another investor,
> just like a loan _or_ like shares.  Whether the dividends paid in
> return
> are guaranteed or are based on some formula related to periodic profit
> and loss calculations, is irrelevant.  What's relevant is that
> dividends
> be paid if and when the contract with the investor mandates that they
> be
> paid.

Do you have any idea how rude that paragraph was?  
(and, since identification seems so touchy here lately, that is a
rhetorical question)


On another topic, do you have any business or financial background or
training, or are you simply another one of us geeks spouting off about
things that you've thought up over the years?  
My formal training is limited to a couple of courses taught by the NAIC,
living with my dad while he studied for his MBA with a minor in finance,
and 5 years of stock market investing as an individual and as part of an
investment club.  Investment topics come up as dinner/after dinner
conversation at least once a week.

> For example if I had bought shares in any profitable company, such as
> Micro$oft, I would fully have expected to be paid dividends by now
> representing the profitabilty of the company.  Micro$oft's
> shareholders
> have been duped in the worst possible way, and the financial system
> has
> been quite happy to help Micro$oft do the duping.  I have no idea what
> M$'s yearly operating budget might be, but I'll bet it's a rather tiny
> fraction of their cash reserves.  That kind of accumulation of wealth,
> especially done in the way it was done, should be a criminal offense.

Microsoft's accumulation of capital is taken to levels that are a bit
absurd, but there are reasons to accumulate capital instead of
immediately investing or, or paying it back to investors as dividends. 
A couple of these could be debt payments coming due in the short to
medium term, saving for a large capital investment (such as a new
factory), or simply having enough cash on hand to be able to turn the
company in a short time period.

> What's happened to investors who threw their money away in less
> successful technology companies is more along the lines of what should
> be expected, though unfortunately it's not regulated and as a result
> there were still a few people who basically stole a whole lot of money
> from both unsuspecting investors _and_ from the tech companies in
> question.

Lots of folks lost money, but it was because they were gambling, not
investing.  To quote star wars, "whenever you gamble... eventually you
lose."  There are ways to invest in the stock market that aren't
gambling, or where you can at the very least stack the odds in your
favor.

> I think share prices should be regulated to match the capital value of
> a
> company.  Such regulation might work like this:  When a company loses
> money then the value of its shares decreases.  When a company makes a
> profit though then some of that profit can be put back in as capital
> investment and/or kept as cash reserves and as a result the value of
> its
> shares will rise; but the rest of that profit _must_ be paid out as
> dividends.  To keep share trading viable in some minimal way the
> regulations might allow sellers to sell shares at at a small amount
> above or below market value -- BUT that would not change their true
> value, the buyer would simply have paid slightly more (because he or
> she
> perhaps really wanted to own a stock in the company in question and
> was
> willing to pay a premium for those shares), or if he's lucky then
> less,
> than their true value (in the latter case perhaps because the seller
> really didn't want to own a stock in the company in question, or
> needed
> his cash back, and was willing to give up the shares for slightly less
> than their face value).  Financial analysts today already talk about
> the
> true value of a company and compare that with the current market value
> of its shares.  What's missing is the regulatory control to ensure
> that
> corporations don't go nuts over the market value of their shares and
> start doing stupid things that ultimately kill their true value, and
> also that companies don't dupe investors into paying far above market
> value for shares and then wasting that capital investment in totally
> unaccountable ways.

I don't think this would work out well.  This amount of regulation would
take away a LOT of freedom from companies.  Companies issue stock in
order to raise capital.  Any regulation that proposes to limit them from
using that capital circumvents the purpose of stocks in the first
place.  Stock value has no bearing on the actual value of the company. 
What you're proposing isn't a stock market, but rather a bank loan by
another name.

> The stock market as it is run today with so little regulation is no
> better investment than any casino on the Las Vegas strip.  Some who
> play
> it can make big winnings, but lots lose even more, and it's the guys
> in
> the back room, the Carley Fiorina's, who walk away with much of what
> the
> little guy loses.  Not a democratic way to accumulate wealth if you
> ask
> me.

It's a lot easier to make money in the stock market than at the casino. 
The problem is that MOST small investors don't have a strategy or plan
behind their stock buying.  They're buying whatever company is 'hot' on
CSPAN, or what they heard from a friend over lunch, or what they read in
the morning newspaper.  The investors who make money (CEOs and board
members are not investors) are the ones who have a plan.  They figure
out what companies are a "good value", and why they're a good value. 
They also come back and look at the companies from time to time, to see
whether or not the company is still a good value, or if it's time to
trim holdings or sell entire.  If you don't treat it like a game, you
can use the stock market to make money.

Companies can do two things with their profits.  They can either give it
back to the folks who put up the capital for them to grow their business
(dividends), or they can put it back in to the growth of the company. 
They can also do a combination of these two companies, which happens
fairly often when a company is transitioning away from a pure growth
strategy.  If you invest in a company that pays out every penny of their
profit growth in dividends, their stock price is not going to grow.  On
the other hand, companies which put every penny they earn back in to the
business show the increased value of the company by the stock price
going up.

I'm sure there are economies somewhere that work similar to the way
you'd like, but I'm not willing to put up with the added tax burden that
such a system would impose.  Especially not when educating investors
could do as good a job, if not better.
	Greg

-- 
Gregory Leblanc <gleblanc at linuxweasel.com>