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Politics : Ask Michael Burke

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To: Knighty Tin who wrote (94436)	2/10/2002 12:50:01 PM
From: Don Lloyd	Read Replies (1) of 132070

KT - The question becomes much less complicated once they go public, because both public and private equity are valued at the public price. That is why so many cos. in the 90s came out with public offering of 10% or less of total equity, to set a value for the private players. ... This is a real world application of the law of diminishing marginal utility. If only 100 shares were made available, they would go to the highest bidder. Every additional 100 shares that are made available must dig down further into the pool of potential bidders, including the original bidder for additional shares, to find takers, especially after the original bidder becomes increasingly satiated. The idea that an entire company can be valued by a marginal trade is a self-fulfilling economic fallacy on the part of the financial markets. To be effective, it really requires the public market in order to supply a large number of bidders whose valuations have not been diminished by existing owned shares. This is not to say that the public is necessarily wrong in their valuation of 100 shares, because they can potentially be bailed out by diversification if the winners are large enough to overcome the effects of multiple 100% losers. Regards, Don

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