Sunday, April 17, 2005 12:04:22 AM
Manti, your analsys is incomlete/wrong - let see what happens in your example (and I will keep the numbers low aat first to simplyfy the math);
You say that compeny ABC decided to issue 100 shares, but decides to only float 1 share (1%) to the public at $10, and keep the remaining 99 shares (99%) in its treasury (or give a stock grant of those 99 shares to the CEO as restricted stock, or whatever), so it really doesn't matter what happens to the ramining 99% as you correctly point out - but let's see what happens to that 1% i.e. the one share floated to the public through the market:
by selling that 1 share to Investor#1, the company receives $10 in its bank account, and Investor#1 now owns 1 share worth $10 - so, ten dollars ($10) was transfered from Investor#1 to the Company's bank account.
However, after say a day, Investor#1 tries to sell that share for $11 (i.e. at ask), but is unable to find any buyers and only sees the bid $9 - so, he/she thinks maybe this was not such a good idea after all, and decides to cut its loses and sell to Investor#2 and bid for $9 - so, now Invsotrs#1 get rid of the stock has a LOSS of $1, i.e. he/she LOST $1 on this transaction.
Investor#2 now owns 1 share of ABC company at $9 and now he/she tries to sell it for $10 (ask), but there are no takers - so, now Invesotr#2 gets nervous, and decides this was not a good idea and sell the stock at bid, which is at $8 for a $1 LOSS to Investor#3.
Now we have two people (Invstor#1 & Invstor#2) that both lost $1 each, and Investor#3 now owns the stock at $8.
Invstor#3 now tries to sell the stock for profit @ $9, but finds no takers - so he sell to investor #4 for $7 for a $1 LOSS. This process now continues:
Invetor#4 sells to Invstor#5 for $6 for $1 loss
Invetor#5 sells to Invstor#6 for $5 for $1 loss
Invetor#6 sells to Invstor#7 for $4 for $1 loss
Invetor#7 sells to Invstor#8 for $3 for $1 loss
Invetor#8 sells to Invstor#9 for $2 for $1 loss
Invetor#9 sells to Invstor#10 for $1 for $1 loss
Invetor#10 sells to Invstor#11 for $0.01 for $1 loss
So, to summ it all up, the Company GAINED $10 for selling 1 share of stock at an IPO for $10, while 9 invesotrs (i.e. Invstors#1-#9) each lost $1 each and Investor#10 lost $0.99, brining cummulative loss to $9.99 while Invsotr#11 still owns that 1 share @ $0.01
GAIN of $ 10 by the comapny = TOTAL LOSS of $ 9.99 (by 10 invsotrs) + the 1 share of stock is owned by Investor#11 and worth $0.01
And you can run the same analysis if say 1,000 shares were floated vs. 1 share (and 99,000 shares held back) - then ABC comapny gains $10,000 for the IPO while the 10 invstors LOSE $9,990 with one guy still holding 1,000 share @ $0.01 i.e. his net worth is $10
Run the analysis with 1,000,000 million shares floated (and 99,000,000 shares held back) - then ABC comapny gains $10,000,000 for the IPO while the 10 invstors LOSE $9,990,000 with one guy still holding 1,000 share @ $0.01 i.e. his net worth is $10,000
so, as you say if the stock goes to $0.01 "through trading", and even though it does not affesct the 99%, the EFFECT of TRADING that 1% of the shares is still literraly a ZERO-SUM GAME, exactly as I am arguing all along, i.e. that the stock market is a ZERO-SUM GAME because this is where the 1% of the shares are being place for trading, and the remaining 99% shares are NOT in the makret as they were NOT "floated" in the IPO and hence NOT floated/placed in the market.
Hence, Stock Market is a ZERO-SUM GAME, or perhaps more accuarelty 99.9% ZERO-SUM GAME ($0.01/$10), which for all practical pursposes makes it a pure ZERO-SUM GAME.
You say that compeny ABC decided to issue 100 shares, but decides to only float 1 share (1%) to the public at $10, and keep the remaining 99 shares (99%) in its treasury (or give a stock grant of those 99 shares to the CEO as restricted stock, or whatever), so it really doesn't matter what happens to the ramining 99% as you correctly point out - but let's see what happens to that 1% i.e. the one share floated to the public through the market:
by selling that 1 share to Investor#1, the company receives $10 in its bank account, and Investor#1 now owns 1 share worth $10 - so, ten dollars ($10) was transfered from Investor#1 to the Company's bank account.
However, after say a day, Investor#1 tries to sell that share for $11 (i.e. at ask), but is unable to find any buyers and only sees the bid $9 - so, he/she thinks maybe this was not such a good idea after all, and decides to cut its loses and sell to Investor#2 and bid for $9 - so, now Invsotrs#1 get rid of the stock has a LOSS of $1, i.e. he/she LOST $1 on this transaction.
Investor#2 now owns 1 share of ABC company at $9 and now he/she tries to sell it for $10 (ask), but there are no takers - so, now Invesotr#2 gets nervous, and decides this was not a good idea and sell the stock at bid, which is at $8 for a $1 LOSS to Investor#3.
Now we have two people (Invstor#1 & Invstor#2) that both lost $1 each, and Investor#3 now owns the stock at $8.
Invstor#3 now tries to sell the stock for profit @ $9, but finds no takers - so he sell to investor #4 for $7 for a $1 LOSS. This process now continues:
Invetor#4 sells to Invstor#5 for $6 for $1 loss
Invetor#5 sells to Invstor#6 for $5 for $1 loss
Invetor#6 sells to Invstor#7 for $4 for $1 loss
Invetor#7 sells to Invstor#8 for $3 for $1 loss
Invetor#8 sells to Invstor#9 for $2 for $1 loss
Invetor#9 sells to Invstor#10 for $1 for $1 loss
Invetor#10 sells to Invstor#11 for $0.01 for $1 loss
So, to summ it all up, the Company GAINED $10 for selling 1 share of stock at an IPO for $10, while 9 invesotrs (i.e. Invstors#1-#9) each lost $1 each and Investor#10 lost $0.99, brining cummulative loss to $9.99 while Invsotr#11 still owns that 1 share @ $0.01
GAIN of $ 10 by the comapny = TOTAL LOSS of $ 9.99 (by 10 invsotrs) + the 1 share of stock is owned by Investor#11 and worth $0.01
And you can run the same analysis if say 1,000 shares were floated vs. 1 share (and 99,000 shares held back) - then ABC comapny gains $10,000 for the IPO while the 10 invstors LOSE $9,990 with one guy still holding 1,000 share @ $0.01 i.e. his net worth is $10
Run the analysis with 1,000,000 million shares floated (and 99,000,000 shares held back) - then ABC comapny gains $10,000,000 for the IPO while the 10 invstors LOSE $9,990,000 with one guy still holding 1,000 share @ $0.01 i.e. his net worth is $10,000
so, as you say if the stock goes to $0.01 "through trading", and even though it does not affesct the 99%, the EFFECT of TRADING that 1% of the shares is still literraly a ZERO-SUM GAME, exactly as I am arguing all along, i.e. that the stock market is a ZERO-SUM GAME because this is where the 1% of the shares are being place for trading, and the remaining 99% shares are NOT in the makret as they were NOT "floated" in the IPO and hence NOT floated/placed in the market.
Hence, Stock Market is a ZERO-SUM GAME, or perhaps more accuarelty 99.9% ZERO-SUM GAME ($0.01/$10), which for all practical pursposes makes it a pure ZERO-SUM GAME.
Discover What Traders Are Watching
Explore small cap ideas before they hit the headlines.
