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I think we've finally run out of reply depth (and you've run out of excuses) but the answer is: whatever the market decides. I've decided I want to sell my shar

by tacos 12y ago

I think we've finally run out of reply depth (and you've run out of excuses) but the answer is: whatever the market decides. I've decided I want to sell my share. I now have to find someone willing to buy it. The spread alone guarantees I'm not going to get $1 for it. > I've always referred to market cap, never accounting. Not true. Which is why my next test question was going to be: the company went public at $10 last year before dropping to $1. So there's $190 in shareholder's equity against 100 shares and $90 cash on hand. Market opens, what's the price? The core flaw of your argument is that the company can't control the market price. So there's no such thing as a "neutral market cap" transaction that changes the number of shares and you certainly can't "undo" it just because the numbers line up on the balance sheet. Specific to your core error, look up P/B ratio. This whole thread apparently got linked from elsewhere and "We've limited requests for this url" is the error given. It's been fun guest lecturing here but I believe our overlords signaled that it's time to free up resources. For anyone who's followed this long, read "Security Analysis" by Benjamin Graham for real insights instead of this incomplete thought experiment gone awry.

pedrocr 12y ago
> I think we've finally run out of reply depth (and you've run out of excuses) This is just rude as have been other posts. I haven't made any excuses, just arguments, which you have generally failed to engage and just thrown in more and more complexity into the mix. > but the answer is: whatever the market decides. I've decided I want to sell my share. I now have to find someone willing to buy it. The spread alone guarantees I'm not going to get $1 for it. Congratulations, you've found a way to extract free money from the market: Cenario A: The transaction happens and the price is now above 1$. Great, there is now at least one person out there willing to buy a share for more than 1$. The initial shareholders should be ecstatic, just taking 90$ in exchange for 90 shares has allowed them to sell at least one share for more than 1$, whereas yesterday they could only get 1$ for them. Free money! Cenario B: The transaction happens and the price is now below 1$. Great, there is now at least one of the shareholders (new or old) that is willing to sell one or more shares for less than 1$. Take 1$ from the 90$ you just raised and buy back the share. The remaining shareholders get to keep the change. Free money! This doesn't mean that movements in price can't accompany capital raises. But what causes that movement isn't the transaction itself it's what it means. If a bank suddenly announces it has raised capital to cover larger than expected loan defaults the share price will decrease, because of the defaults not the capital raising transaction. If a manufacturing company announces it has raised capital to increase it's capacity in a booming market, the price may very well rise, not because of the capital raise, but because the expectation is that the company will be more profitable in the future. The point, and this is my final comment, is that raising capital doesn't by itself change the share price of the company, but what the transaction implies may very well do. In the bank case the revelation of past problems lowers the price, in the manufacturing example the expectation of future profits does. Never the transaction itself which is the same in both cases. > For anyone who's followed this long, read "Security Analysis" by Benjamin Graham for real insights instead of this incomplete thought experiment gone awry. The book recommendation sounds great to me. I'd add the recommendation for a good finance textbook as it may help find some of those mispriced opportunities that Graham talks about. If you suddenly find a company that has just raised money being valued at less that previous_value+raised_money it may pay to look into if there's an opportunity or if there's a reason the price is lower (the expectation that the company will blow through the money without generating enough profit).

by tacos 12y ago

pedrocr 12y ago

> I think we've finally run out of reply depth (and you've run out of excuses) This is just rude as have been other posts. I haven't made any excuses, just arguments, which you have generally failed to engage and just thrown in more and more complexity into the mix. > but the answer is: whatever the market decides. I've decided I want to sell my share. I now have to find someone willing to buy it. The spread alone guarantees I'm not going to get $1 for it. Congratulations, you've found a way to extract free money from the market: Cenario A: The transaction happens and the price is now above 1$. Great, there is now at least one person out there willing to buy a share for more than 1$. The initial shareholders should be ecstatic, just taking 90$ in exchange for 90 shares has allowed them to sell at least one share for more than 1$, whereas yesterday they could only get 1$ for them. Free money! Cenario B: The transaction happens and the price is now below 1$. Great, there is now at least one of the shareholders (new or old) that is willing to sell one or more shares for less than 1$. Take 1$ from the 90$ you just raised and buy back the share. The remaining shareholders get to keep the change. Free money! This doesn't mean that movements in price can't accompany capital raises. But what causes that movement isn't the transaction itself it's what it means. If a bank suddenly announces it has raised capital to cover larger than expected loan defaults the share price will decrease, because of the defaults not the capital raising transaction. If a manufacturing company announces it has raised capital to increase it's capacity in a booming market, the price may very well rise, not because of the capital raise, but because the expectation is that the company will be more profitable in the future. The point, and this is my final comment, is that raising capital doesn't by itself change the share price of the company, but what the transaction implies may very well do. In the bank case the revelation of past problems lowers the price, in the manufacturing example the expectation of future profits does. Never the transaction itself which is the same in both cases. > For anyone who's followed this long, read "Security Analysis" by Benjamin Graham for real insights instead of this incomplete thought experiment gone awry. The book recommendation sounds great to me. I'd add the recommendation for a good finance textbook as it may help find some of those mispriced opportunities that Graham talks about. If you suddenly find a company that has just raised money being valued at less that previous_value+raised_money it may pay to look into if there's an opportunity or if there's a reason the price is lower (the expectation that the company will blow through the money without generating enough profit).