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It doesn't matter if it represents the company because the thing that shareholders care about is how much $ each share represents. This is why a stock will tank

It doesn't matter if it represents the company because the thing that shareholders care about is how much $ each share represents. This is why a stock will tank when a company talks about diluting their existing shares by creating new shares out of thin air. What you're talking about would be more akin to a stock split.

PragmaticPulp 6y ago
When a company sells more shares, they money they raise from selling those shares contributes to the value of the company. If a company sells 100,000 shares at a dollar each, the company is now worth $100,000 more because they now have another $100,000 on their balance sheet. No value is lost in this process. > This is why a stock will tank when a company talks about diluting their existing shares by creating new shares out of thin air. Companies can't just declare that more shares exist and dilute away shareholders like you said. They either issue them as stock based compensation, which is an expense, or they sell the shares to buyers, which means money goes toward their bottom line.
- blackearl 6y ago
  Value is lost to existing shareholders who have the value of their shares diluted. Everything you're saying may seem logical, but economics is often illogical and any 1:1 $:stock sales still tank the share price.
  - PragmaticPulp 6y ago
    > Value is lost to existing shareholders who have the value of their shares diluted. You're confusing percentage dilution with absolute diluation. The shares represent the value of the company. The value of the company has increased by the amount of money raised. Each share represents a lower percentage of the company, but this is offset by the fact that the value of the company has increased by the amount of money raised. The shares have not been diluted on an absolute value scale. Owning 10% of a company worth $1mm is the same value as owning 5% of a company worth $2mm. If you own 10% of a $1mm company that raises another $1mm by selling more shares, you now own 5% of a 2mm company. Your percentage ownership is diluted, but your value has not been stolen. This is basic pre- and post-investment math. Shareholders are diluted on a percentage basis, but not on an absolute basis.
    - doggosphere 6y ago
      Assuming all shares are equal in class, voting power is diluted.
    - blackearl 6y ago
      You continue to make a 1:1 assumption. Dilution can cause the stock to go down because of FUD of financial health. It can go up because of strong leadership and optimistic futures. It's not occurring in a vacuum where $1 is 1 share and +$1 to company worth.
      - Spivak 6y ago
        Yes but a company doing something that causes the market to value shares less isn’t dilution. The fact that you know how the market will respond to companies raising capital by issuing new shares doesn’t change the legality of it.
      - ALittleLight 6y ago
        But raising money might also cause the stock to go up, right? More investment signals confidence and planned growth. More people may want to buy in. Issuing new shares is not always a good move and sometimes it might cause investors to lose money and percentage ownership, but sometimes it might be a good move and result in investors gaining money (though still getting their ownership diluted).
    - erik_seaberg 6y ago
      I don't really care about how much of the balance sheet I could lay claim to during a liquidation. That's going to be pennies on the dollar, or nothing. I care how much of future profits will be returned to be, which does depends on the percentage I end up owning. A round needs to enable a bigger gain than the fraction it dilutes everyone.
      - xorcist 6y ago
        That would very much depend on what you're buying stock in. Holding companies and investment companies are mostly valued to what your "share" of their holdings is worth. Real estate too.

PragmaticPulp 6y ago

When a company sells more shares, they money they raise from selling those shares contributes to the value of the company. If a company sells 100,000 shares at a dollar each, the company is now worth $100,000 more because they now have another $100,000 on their balance sheet. No value is lost in this process. > This is why a stock will tank when a company talks about diluting their existing shares by creating new shares out of thin air. Companies can't just declare that more shares exist and dilute away shareholders like you said. They either issue them as stock based compensation, which is an expense, or they sell the shares to buyers, which means money goes toward their bottom line.

blackearl 6y ago
Value is lost to existing shareholders who have the value of their shares diluted. Everything you're saying may seem logical, but economics is often illogical and any 1:1 $:stock sales still tank the share price.
- PragmaticPulp 6y ago
  > Value is lost to existing shareholders who have the value of their shares diluted. You're confusing percentage dilution with absolute diluation. The shares represent the value of the company. The value of the company has increased by the amount of money raised. Each share represents a lower percentage of the company, but this is offset by the fact that the value of the company has increased by the amount of money raised. The shares have not been diluted on an absolute value scale. Owning 10% of a company worth $1mm is the same value as owning 5% of a company worth $2mm. If you own 10% of a $1mm company that raises another $1mm by selling more shares, you now own 5% of a 2mm company. Your percentage ownership is diluted, but your value has not been stolen. This is basic pre- and post-investment math. Shareholders are diluted on a percentage basis, but not on an absolute basis.
  - doggosphere 6y ago
    Assuming all shares are equal in class, voting power is diluted.
  - blackearl 6y ago
    You continue to make a 1:1 assumption. Dilution can cause the stock to go down because of FUD of financial health. It can go up because of strong leadership and optimistic futures. It's not occurring in a vacuum where $1 is 1 share and +$1 to company worth.
    - Spivak 6y ago
      Yes but a company doing something that causes the market to value shares less isn’t dilution. The fact that you know how the market will respond to companies raising capital by issuing new shares doesn’t change the legality of it.
    - ALittleLight 6y ago
      But raising money might also cause the stock to go up, right? More investment signals confidence and planned growth. More people may want to buy in. Issuing new shares is not always a good move and sometimes it might cause investors to lose money and percentage ownership, but sometimes it might be a good move and result in investors gaining money (though still getting their ownership diluted).
  - erik_seaberg 6y ago
    I don't really care about how much of the balance sheet I could lay claim to during a liquidation. That's going to be pennies on the dollar, or nothing. I care how much of future profits will be returned to be, which does depends on the percentage I end up owning. A round needs to enable a bigger gain than the fraction it dilutes everyone.
    - xorcist 6y ago
      That would very much depend on what you're buying stock in. Holding companies and investment companies are mostly valued to what your "share" of their holdings is worth. Real estate too.