Comments on: Second Class Shareholders? Print Your Money At Your Own Will ! http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/ A site to share my tips, tools, and humble thoughts on the journey to wealth Sun, 02 Oct 2011 19:26:45 +0000 hourly 1 http://wordpress.org/?v=abc By: Frugal http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/comment-page-1/#comment-1927 Frugal Fri, 08 Dec 2006 16:05:33 +0000 http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/#comment-1927 You've made your points very well and very good written. Maybe even better than my post, :). Sadly, the 12% profit is only seemingly true for a moment as I have seen and explained. You’ve made your points very well and very good written. Maybe even better than my post, :) .

Sadly, the 12% profit is only seemingly true for a moment as I have seen and explained.

]]> By: doug http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/comment-page-1/#comment-1924 doug Fri, 08 Dec 2006 12:23:40 +0000 http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/#comment-1924 Frugal, your point is well taken, but be aware that usually the economic power of all shares of common stock are equal, it is the voting rights that are different. So, even with 50% or the voting power, if you have 12% of the stock, as in your example, you are still only entitled to 12% of the profits. What such a shareholding does, as you rightly point out, is insulate management from shareholder pressure, since they control the voting power over the directors. In practice, management tends to control the company regardless of who has the shares. The issue is, do you want that management? I mean, yes, it's true that Brin, Schmidt and the other guy whose name escapes me at the moment, aren't about to be forced out of the company, but would you want them to be? What is important from your memo is that as an investor it is critical to understand the capital structure of a company you invest in. You cannot get this info from Yahoo finance, either. You must go to the SEC site and read the finanicals - especially the footnotes! It is in the footnotes that you find out about the richts and powers of different classes of stock. After you know, you can decide if you still want to invest. Generally, I avoid all stocks with multiple classes of stock - including BRK (though at least you can purchase the class A shares, with $100k), the washington post, ny times, dow jones and many other media properties (they do this ostensibly so that they can protect the editorial content and direction of the properties. Imagine if some conservative financiers acquired control of the NY Times and fired the editorial board to change the reporting content of the newspaper to reflect conservative positions. Hey, wait a minute, that might not be so bad!) The biggest problems are when the founders make decisions to protect their special equity at the expense of other shareholders. As you said, power can corrupt. The Ford family is a classic example. The company will finally go bankrupt in 2009, at which point, the equity will be wiped out, and we can start over with a one-class stock environment. I don't own shares in Ford, either, though I think often about shorting them. Frugal, your point is well taken, but be aware that usually the economic power of all shares of common stock are equal, it is the voting rights that are different. So, even with 50% or the voting power, if you have 12% of the stock, as in your example, you are still only entitled to 12% of the profits.

What such a shareholding does, as you rightly point out, is insulate management from shareholder pressure, since they control the voting power over the directors. In practice, management tends to control the company regardless of who has the shares. The issue is, do you want that management? I mean, yes, it’s true that Brin, Schmidt and the other guy whose name escapes me at the moment, aren’t about to be forced out of the company, but would you want them to be?

What is important from your memo is that as an investor it is critical to understand the capital structure of a company you invest in. You cannot get this info from Yahoo finance, either. You must go to the SEC site and read the finanicals – especially the footnotes! It is in the footnotes that you find out about the richts and powers of different classes of stock. After you know, you can decide if you still want to invest.

Generally, I avoid all stocks with multiple classes of stock – including BRK (though at least you can purchase the class A shares, with $100k), the washington post, ny times, dow jones and many other media properties (they do this ostensibly so that they can protect the editorial content and direction of the properties. Imagine if some conservative financiers acquired control of the NY Times and fired the editorial board to change the reporting content of the newspaper to reflect conservative positions. Hey, wait a minute, that might not be so bad!)

The biggest problems are when the founders make decisions to protect their special equity at the expense of other shareholders. As you said, power can corrupt. The Ford family is a classic example. The company will finally go bankrupt in 2009, at which point, the equity will be wiped out, and we can start over with a one-class stock environment. I don’t own shares in Ford, either, though I think often about shorting them.

]]> By: Frugal http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/comment-page-1/#comment-1912 Frugal Thu, 07 Dec 2006 03:34:49 +0000 http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/#comment-1912 For the particular company that I've heard that did such thing, I heard that all the mutual fund managers who invested in the company were very mad, but couldn't do anything (because voting power of the management > 50%). Effectively, existing shareholders of class A got ROBBED legally and/or slowly. I won't reveal which company did this so that I don't get into any legal trouble, but I assume that such great ATMs on WallStreet probably did not get exercized just once, but many times by more than just one company. For the particular company that I’ve heard that did such thing, I heard that all the mutual fund managers who invested in the company were very mad, but couldn’t do anything (because voting power of the management > 50%).

Effectively, existing shareholders of class A got ROBBED legally and/or slowly. I won’t reveal which company did this so that I don’t get into any legal trouble, but I assume that such great ATMs on WallStreet probably did not get exercized just once, but many times by more than just one company.

]]> By: SDStormrider http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/comment-page-1/#comment-1897 SDStormrider Thu, 07 Dec 2006 02:31:28 +0000 http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/#comment-1897 Interesting breakdown you posted, it's a bit concerning, particularly since Im one of the 'lesser' shareholders! Interesting breakdown you posted, it’s a bit concerning, particularly since Im one of the ‘lesser’ shareholders!

]]> By: Frugal http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/comment-page-1/#comment-1890 Frugal Wed, 06 Dec 2006 02:52:32 +0000 http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/#comment-1890 Well, I'm not saying anything bad about Google here (yet? I hope never will I need to). My key points are 1. Our stock market system allows such "ATM" to exist. 2. Absolute power corrupts, and I doubt anyone wouldn't use their power to their advantage. Google is certainly doing things differently because according to MarketWatch, there are only some 200 companies, and as we know, there are about 5000 publically trading companies or more in the US. Certainly NOT every founder/company that IPO does this. There are so many other ways that can go wrong with a company. I am really not in the mood of going through those. Well, I’m not saying anything bad about Google here (yet? I hope never will I need to).

My key points are

1. Our stock market system allows such “ATM” to exist.
2. Absolute power corrupts, and I doubt anyone wouldn’t use their power to their advantage.

Google is certainly doing things differently because according to MarketWatch, there are only some 200 companies, and as we know, there are about 5000 publically trading companies or more in the US. Certainly NOT every founder/company that IPO does this.

There are so many other ways that can go wrong with a company. I am really not in the mood of going through those.

]]> By: kevin http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/comment-page-1/#comment-1889 kevin Wed, 06 Dec 2006 02:26:48 +0000 http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/#comment-1889 all I know is, they are called 'founder's shares' and they've been around for a long time. google isn't doing anything different than any other start up. if you want to be mad at someone, be mad at one of the hundreds (thousands?) of dot com startups that blew through millions of dollars of VC money, IPO'd and went out of business (after the upper-level management voted themselves tons of immediate vesting options and cashed out - while their employees lost their life savings. If you want one of the CEO's name, email me and I'll be glad to give you his address at his country club. all I know is, they are called ‘founder’s shares’ and they’ve been around for a long time. google isn’t doing anything different than any other start up. if you want to be mad at someone, be mad at one of the hundreds (thousands?) of dot com startups that blew through millions of dollars of VC money, IPO’d and went out of business (after the upper-level management voted themselves tons of immediate vesting options and cashed out – while their employees lost their life savings. If you want one of the CEO’s name, email me and I’ll be glad to give you his address at his country club.

]]> By: indexfundfan http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/comment-page-1/#comment-1884 indexfundfan Tue, 05 Dec 2006 18:15:19 +0000 http://www.1stMillionAt33.com/2006/12/second-class-shareholders-print-your-money-at-your-own-will/#comment-1884 For all the "good" that Google has been appearing to project, the top management at Google ought to be ashamed of themselves. For all the “good” that Google has been appearing to project, the top management at Google ought to be ashamed of themselves.

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