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Going to the public markets and saying "we're selling $100M worth of stock to fill a gap in our revenue" is basically suicide. This is essentially what happened
by 015a 3y ago
Going to the public markets and saying "we're selling $100M worth of stock to fill a gap in our revenue" is basically suicide. This is essentially what happened to SVB earlier this year; its different because they're a bank and there's bank runs to consider and the FDIC and etc, but they said "we need liquidity so we're selling a bunch of investments" and everyone went like "huh? are y'all ok? screw that we're out" and they died a week later.
SVB literally would have been fine, if you remove market psychology from the picture. But, that's a fallacy that everyone from You to highly experienced banking professionals make; ignoring market psychology.
People have this idea of stock having value; but it only has market value. Its a similar fallacy as believing that your investments are protected because you have stop-losses set; stock only has value because people believe it has value, and if corporate leadership takes action that would cause a lot of people to stop believing your stock has value, that stock doesn't have value anymore. Its not a house; its fairy dust.
- rileymat2 3y ago"stock only has value because people believe it has value" Unless this is an indictment of all pricing, it seems short sighted as companies have assets and cashflow that exist beyond belief. When you buy stock you are buying a (small) percentage of everything that company owns.
- 015a 3y agoI mean, look at SVB, only as the most recent example. They went from an extremely valuable company to being worth zero over a weekend, despite having billions of dollars in assets (even minus liabilities). Their shareholders also went to zero with them. You can argue that SVB is weird because they're a bank and their assets had to be liquidated to service banking customers; but that's basically how all companies work. Assets get liquidated to service debtors, generally at a significant discount on the value they reported the asset to be worth to the government. Usually; "believe has evaporated" happens to companies that, right before the belief evaporated, had to take on significant debt to survive another quarter, so that liabilities number is high. Lawyers and gutters get paid. Maybe insiders get priority liquidation. You can reasonably philosophically view corporate shares are partial ownership in the assets of a company. Realistically; if there's been one instance in history of a share converting into liquid capital after a "belief has evaporated" event, that resulted in more than, like, I can buy a coffee with this money, I'd love to hear about it.