Quote:
Originally Posted by DickFuld
I feel we're getting pretty off topic by discussing corporate finance in this thread, so this will be my final post on this specific topic. Feel free to get the last word in if you wish.
Firstly, as I said in my prior post, I believe nearly 100%, if not actually 100%, of major companies issue new shares regularly, and at the very least annually. This is not inclusive of any secondary offerings as it is used in the corporate structure as an incentive in all major companies. I suppose since I'm only 99.9% certain, I would dare you to find a company that doesn't issue new shares annually for these purposes. Equity based compensation is the preferred method of rewarding performance. It absolutely dilutes shareholders and this is built into the price of all companies. If every variable except stock based compensation was constant, and inflation was 0, a stock's price would decline, period.
I'm not sure this corporate finance context is useful, but I don't think what you wrote is necessarily true at all. It's true that most corporations issue equity on a regular basis, but the key is that they are getting something in return for those shares:
- when the firm has an offering, they're receiving cash
- when the firm issues equity-based compensation, they're receiving employee services that will presumably generate incremental operating profit
- when the firm issues equity in an acquisition, they're receiving the future cash flows of the acquired entity
So it's not necessarily true that the issuance of those shares dilutes the value of the existing shares. Whether it does or not depends on the relative value of shares issued and value received. (If what you're saying is that earnings/cash flows/etc. are held constant while equity-based compensation varies, then of course more equity issuance will dilute shares, because you've assumed that they're exchanged for 0 value, but I don't think that's a reasonable ceteris paribus.)
I suspect that a more relevant example might be a firm that issues shares of stock as dividends, for literally nothing in return. (See Tootsie Roll, TR, as an example.) There, it's unambiguous that the share issuance dilutes the existing share values. But that's ok (if pointless) for existing shareholders because they're the ones receiving those newly-issued shares, and so each shareholder's total $ value will be the same even as the per-share $ value declines.
How does this relate to bitcoin? Not entirely sure. Perhaps the closest analogy would be to a firm that has 2 classes of share, A and B, and regularly issues stock dividends on its A shares, but not to its B shares. Does each dividend dilute B shareholders? Yes, absolutely. Is the effect baked into current price? Who knows.
Sorry to contribute to the tangent. Bitcoin pessimist fwiw.