For SCMR followers:
Understanding Planned Distributions of Stock
By James J. Cramer
8/22/00 9:02 AM ET
Why should Schemer (SCMR:Nasdaq - news - boards) go down because of a planned "distribution?" Schemer (which is, of course, what everybody on Wall Street calls Sycamore) got clubbed for 12 points on Monday. We think it went down because a venture capital firm released stock to its investors.
Why should that cause a stock to go down? Let's walk through what happens, because I have both received this kind of stock personally and have advised wealthy individuals who have received it.
First, the venture capitalists of the country are playing with other peoples' money for the most part. Some of it is institutional, but some of it is individuals' money. Venture capitalists occasionally break up partnerships and send out stock, not cash, to these individuals. The people who get it, for the most part, know absolutely nothing about the stocks they receive. They tend to know only their cost basis and where the stock is.
Sometimes the holders are people like me who can make up our minds about what to do with the stock. As someone who owns Schemer and thinks it is a good stock, I am willing to hold on. But most people look at the price of Schemer, 154, and think, "Holy cow, I am up 150 on this stock! Sell it, fast."
We think that is what happened on Monday, which is why we were not perturbed by the action. Last night, I heard from several readers who told me that, indeed, they had been distributed stock in the same fashion I just outlined. Which emboldens me into thinking that, if Schemer gets hit again, we should buy more.
Thanks to Mulan |
