Carranza - you have to work the math.
[slight edits]
If however Qualcomm issues a share to an insider for $1.00, and our Shareholder then buys it from the employee for the market price of $32.00 then the employee ends up with $31. Our Shareholder is poorer by $32 but richer by the $1 that the company gets. So our Shareholder is poorer by $31.
C2: John, this is wrong.
When the shareholder buys a share from any source, he is not "poorer" by $32. He simply exchanged one asset, cash, for the market value of another asset, a share of stock
Look at it carefully and in the context of THINKING LIKE AN OWNER. Remember, by construction our Shareholder already owns all shares of Qualcomm, so he owns 100% of the assets. He is no wealthier or poorer (from an owner perspective) if the market price goes up or down. He owns an asset which has whatever value it has, irregardless of market conditions.
The way he gets wealthier or poorer is if the actual assets he owns gain or lose in value.
When Qualcomm issues another share it does not increase its assets. So if this share is sold to our shareholder for $32 by Qualcomm then yes. Qualcomm's net assets go up by $32 and our shareholder is poorer by $32 in cash but richer by the assets he owns. And nets out to a wash.
HOWEVER if this share is sold to a third party for $1.00, then Qualcomm's asset base goes up by $1.00. When our Shareholder then buys this share from the employee for $32 he ends up having parted with $32 in cash and picking up $1 in Qualcomm assets.
So I am not wrong. That employee ended up with $31 of somebody's money. The only place it could have come from is Qualcomm (it didn't) or the Shareholder (it did).
Where you are coming from is "hey, wait a minute, all those Qualcomm shares he owns, they are worth $32 each. So he bought this share worth $32".
But who would he sell them to? By construction, he is the Sole Shareholder. He can pay himself as much as he wants (say, $65 per share) and not change his net asset value at all by shifting money from one pocket to another. So he didn't buy something worth $32. He bought up an outstanding share for $32. The process of generating that outstanding share garnered him $1.00 in extra assets. So he bought something that turned out to be worth -$31.00
I am merely suggesting that we look at shares as an owner, not as a participant in a ponzi scheme.
John |
