Your Stock Support BudgetBy William CatePublished February 2000[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] It c...
Your Stock Support Budget By William Cate Published February 2000 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
It costs money to create share buying. Every public company must find the buyers for their shareholders' stock. You must have the buyer when your shareholder sells. If your company fails to find the buyers, your share price will collapse.
To maintain your present share price, your float will trade four times annually. Your float is the stock held by your public shareholders. If your company's float is one million shares, you must expect to find four million shares of buying in the next year. If you keep your present shareholders, you'll cut your stock support costs by 100%. If your insiders can't sell and thus add to the company's float, you'll reduce your future stock support costs by fourfold for every unsold insider share.
The annual supply and demand for your company's stock isn't constant in the Market. You get a favorable write-up. Demand for your stock temporarily jumps up. A major shareholder liquidates their position. The supply of your stock temporarily increases in the Market. You need to level the supply/demand curve. You can often do it by working with your shareholders. Your goal should be to maintain a sustainable share price. Your share price should trade within a narrow range.
There's a silver-lining about bad news. If your shareholders hear it from you, you'll gain credibility. If they hear it from you, it won't sound as bad as hearing it from their broker, a newspaper article, or in the Shareholders' Annual Report. Budget money to spread bad news. It's a sound long term strategy.
A Stock Support Rule of Thumb for OTCBB companies is that it costs a dime to create a share of buying, when your share price is below one dollar. For a share price above one dollar add five cents for every dollar of the share price above one dollar. This means that it costs a quarter to support a four-dollar share price. Multiply this share cost by your float and then by four and you have an annual budget for stock support.
Stock support and compliance costs are the best arguments against going public. You must convert these costs into a strong share price. You must use your strong share price to buy profitable assets for your company. The profitable assets must improve your bottomline. If you don't use your stock as money to build your company, your long term shareholders will lose their investment in your company. You'll fail.
If you believe that your share price reflects the merits of your company, don't go public. Your share price will languish for years as you await some Fundamentalist writer to discover the value in your company. Meanwhile the pragmatic CEO builds value by using their strong share price to buy profitable assets. It can take twenty years to create a hundred million dollar private company. It can take 20 months for a public company to buy for stock a hundred million dollar public company. The option is your company can earn the money, pay taxes, reinvest and grow. Or, you can go public, print your own money called stock, and use your strong share price to buy assets and become a hundred million dollar company. Your decision involves your willingness to spend money to ensure a strong share price.
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/globalvillageinvestmentclubwelcome/]
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/globalvillageinvestmentclubwelcome/]