Stock Is Money
Stock is Money By William Cate Published May 1998 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinves tmentclubwelcome/]
Every public company has a permit to print money. We call their money "stock." The public company's job is to convince investors that their stock is worth more than the investor's money. When you succeed, your share price is strong. When you fail, your share price collapses. Eventually, your company will fail.
Stock, like money, suffers from inflation. The objection to paper money is the ability of the Government to expand its supply. When a Government inflates its currency, it risks economic upheaval. National financial instability leads to political unrest. President Suharto of Indonesia is an example of the risks politicians run with inflation.
Public companies run the same inflation risk. One reason the Canadian Stock Markets lack credibility is that they allow the listed company insiders to inflate the issued stock and dump it. I disagree with the SEC decision to reduce the holding period for insider stock to one year. The inflated shares hit the market like a tidal wave. When the U. S. Government inflates the currency, it takes about eighteen months for the American people to see higher prices. When a public company issues more stock, it often takes a few days for the stock to depress the company's share price. At best, it takes a year for the company's shareholders to pay the price for the stock inflation.
One way the American Government has offset its tendency to inflate the dollar is to convince non-Americans of the stability of the U. S. dollar. You can find U. S. Hundred-dollar bills hidden in mattresses from India to Russia. People are storing dollars as a hedge against local economic instability. What these dollar hoarders fail to realize is that the American Government may not redeem those dollars in the future.
In the same way, foreign investors want to buy stock in American companies. It's the reason that it's easier to list an American OTCBB company in Europe than a domestic company. It's easier to attract investors to an American stock than to a domestic stock. The ethical issue is the same for the U. S. Government and the public company. Should foreign small capital investors have the right to redeem their American shares? I believe the answer should be yes. My viewpoint isn't shared by over 80% of the OTCBB companies.
Stock is money. At some point, shareholders must convert their shares to dollars. If you wisely invested the shareholders' money the balance sheet worth of your company will be greater. If you maintain a sound IR program, your share price will be stronger. If you seek to sell your company to an industry giant, in a friendly acquisition at market capitalization, your shareholders will gain the greatest benefit from their investment. You will make more money.
Your approach is simple. Investors buy your stock today and fund your company, into the future. In time, your shareholders sell their stock in your company and convert their profits into dollars. If you implement this policy, you'll avoid problems with regulators. Your company will prosper. You'll grow rich.
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website: [http://home.earthlink.net/~beowulfinvestments/globalvillageinves tmentclubwelcome/]
About the author: He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinves tmentclubwelcome/]