Mattu's Tax Loss Picks

[Mattu]

>>I think the point you're missing is that employee stock options are worthless unless the stock goes UP from what it was worth when the options were issued.<<

No, I completely understand that. That's why they call it an option instead of "free stock" ... it has a certain strike price, similar in nature to the real options you can trade daily.

>>I believe that the minute a company is public, it should be issuing options to its employees (in reasonable quantities).<<

I'm somewhat in agreeance here, yet also still leaning my way. The reason being is quite simply the bubble. Bob, you had companies like stamps.com that had never even generated a revenue, much less a profit, dishing out stock options. How does that motiviate anybody? If the stock price is rising, options are striking, why does anybody care about the profits? But, we've already hashed this out -- the bubble and the abuse really made no sense and it is very much the reason we are in the market environment we are in. Abused stocks and options in overinflated pig stocks. Totally.

I think tying stock/options to PRICES of the stock is ridiculous. You build up people that are playing the stock market instead of focusing on your company. Caught up in the whole game. People need to manage the business and not the stock. People should be tied down to profit margins. In the end, their stock would be worth way more, as the price in the market fluctuates upwards to catch up with the new net income. The stock needs to be a function of the business; the business doesn't need to be a function of the stock. If you have a bunch of naive idiot employees heavily vested in options, what happens in this kind of market in a downturn? They are no longer as energized are they? But, if they can still get those blocks of stock the company is picking up cheap at no cost to them (and a tax benefit to the company), you aren't having to worry about strike prices and such. People are holding more long-term paper.

>>Who will the employees sell their stock to if they decide to sell? The public. It's still selling pressure and dilution of at least the float in either scenario.<<

No way. Not in what I was proposing. I am talking about the company buying up blocks of CHEAP stock on the open market and reserving it in treasury for employee incentives, achievements. That doesn't dilute anything. In the short-term it helps take stock out of the market, actually and puts it in more stable hands. Even when it is sold back to the public down the road, it isn't diluting anything at all. It's stock that was in the float once before.

>>The issuance of free stock (that cost the company money) shouldn't be done as capriciously as bonuses are given, either.<<

One thing I'd do if I ran a public company would not sign any definitive agreement with employees for stock. I like spontaneous type stuff. I like to reward on results. Somebody lands a million dollar deal, give them some stock "Good job." .... strike prices, set times to vest, or issuance over time. Boring. That doesn't motive me. If you told me that everytime I landed a contract, I'd get some free block of company stock, I'd be closing deals faster than you can do the paperwork. And KNOWING that getting my stock isn't hurting the book value that I"m trying to improve. You crazy? I'd be your lead closer. Sign me up.

I'm totally convinced that, stock is a major motivator, but I think options still dilute more than the employees addition to the bottomline. I think it erodes the bottom end, while the top end is inflating without people knowing.

For example, if you go out and register a huge block of stock, it's gonna kill the stock for a while. The adjustment needs to be made for the price now that there are more shares out to go agains the BV. How often do you read about X stock options were vested/printed into the market today. Never. It takes time and lots of reading to have any clue when a huge ass block of options are going to flood the market. And the shareholders that are funding the options get whacked when they read the 10Q with all these new shares in it.

Here's a better financial comparison. It's widely known that companies are valued much higher as public companies than being private. Financials are very much like being private. They are valued at exactly what they are. Public stock is nothing but a multiple of the financials (am I losing anybody?). The way options look to me, is: Bob generates $100 in profit. For that, he might get $150 worth of options. And if the price increases in the next few days, he has $200 worth of options. All because he added simply $100 of profit. There is still $100 of air out there somewhere. Guess who's gonna eat that cost? The shareholders with the capital. I know this might not make sense to some, but it does in my pea brain.

Again, my two issues are that -- 1) the options *cost* more than the employee actually generates and 2) they all too often get abused and handed out like food stamps...I'm really sold on the idea of tying some sort of option/share hybrid to profit margins for certain departments/subsidiraries. That makes long-term employees out of people who are managing the business and NOT their stock portfolio.

Now, somebody tell me why, on a Saturday night at 9:00 pm, I'm at home writing about stock options and book value dilution.