The BIGGEST question over the past few weeks has b
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Posted On: 11/27/2018 2:21:29 PM
The BIGGEST question over the past few weeks has been the R/S and let me address it here since some of my fellow investors have been constantly asking about it.
Let's say a CEO has around 45-50 Mn. shares and an Investor (let's assume a name - AB) had around 100,000 shares.
In March-April 2018, CEO could have sold them at around $2.5-$3 each and potentially made around $100-120 Mn. while AB may have sold his 100k shares and made around $250-$300k at that time.
Question: Why didn't they do that?
Answer: CEO wants to be a Billionaire and AB wants to be a millionaire which couldn't happen with the stock price of $2-3 at that time.
Fast forward.....Oct'2018
R/S is announced and some of the investors including AB have serious questions regarding the R/S stating that CEO and other big investors holding millions of shares will be less impacted by the R/S and the smaller investors like AB having (100k or less) will just be left with nothing (very few shares) if 20:1 or 40:1 split is executed.
Let's assume there's a 20:1 R/S, how will it impact the CEO, AB and other investors. Say the stock price is around 30 cents and a 20:1 R/S is applied, the NASDAQ uplist price will be $6 and CEO will have around 2.5 Mn. shares and AB will have 5000 shares. At a share price of $6, CEO's total share value will be around $15 Mn. (it was $100 Mn+ in April'18) and AB's share value will be around $30,000 (it was around $250k+ in April'18).
Now, time for some hard questions.....
Will the CEO not try to avoid the R/S at 1:20 and grow the share price higher organically?
Will the CEO be happy with $15 Mn. worth of shares at $6 each? Remember, if he had to make just $100Mn. from this venture, he could have done that in April'2018.
Why didn't he sell at $2.5-$3 price even though he could have made a lot of money? It's simple, he wants the share price to be much higher in future at $10/25/50/100+ to get a much greater return.
The investors who have been questioning the R/S need to think/calculate where the CEO himself stands after the R/S. You'll get your answers very very easily.
PS: There are around 11 million Millionaires and around 540 Billionaires in the US and it's not easy to become any of them. AB will be a millionaire one day with 100k shares and the CEO will be a Billionaire at that time.
Cheers!!
Let's say a CEO has around 45-50 Mn. shares and an Investor (let's assume a name - AB) had around 100,000 shares.
In March-April 2018, CEO could have sold them at around $2.5-$3 each and potentially made around $100-120 Mn. while AB may have sold his 100k shares and made around $250-$300k at that time.
Question: Why didn't they do that?
Answer: CEO wants to be a Billionaire and AB wants to be a millionaire which couldn't happen with the stock price of $2-3 at that time.
Fast forward.....Oct'2018
R/S is announced and some of the investors including AB have serious questions regarding the R/S stating that CEO and other big investors holding millions of shares will be less impacted by the R/S and the smaller investors like AB having (100k or less) will just be left with nothing (very few shares) if 20:1 or 40:1 split is executed.
Let's assume there's a 20:1 R/S, how will it impact the CEO, AB and other investors. Say the stock price is around 30 cents and a 20:1 R/S is applied, the NASDAQ uplist price will be $6 and CEO will have around 2.5 Mn. shares and AB will have 5000 shares. At a share price of $6, CEO's total share value will be around $15 Mn. (it was $100 Mn+ in April'18) and AB's share value will be around $30,000 (it was around $250k+ in April'18).
Now, time for some hard questions.....
Will the CEO not try to avoid the R/S at 1:20 and grow the share price higher organically?
Will the CEO be happy with $15 Mn. worth of shares at $6 each? Remember, if he had to make just $100Mn. from this venture, he could have done that in April'2018.
Why didn't he sell at $2.5-$3 price even though he could have made a lot of money? It's simple, he wants the share price to be much higher in future at $10/25/50/100+ to get a much greater return.
The investors who have been questioning the R/S need to think/calculate where the CEO himself stands after the R/S. You'll get your answers very very easily.
PS: There are around 11 million Millionaires and around 540 Billionaires in the US and it's not easy to become any of them. AB will be a millionaire one day with 100k shares and the CEO will be a Billionaire at that time.
Cheers!!
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Cheers!!