Don, great argument why options don't belong on the balance sheet. And we agree.
The whole art of the carny is drawing the eyes of the mark away from where the trick takes place. And the refrain from our high tech prestidigitators is "but they don't affect the assets of the company", and "see, this thing causes no cash flow...". "Nothing up my sleeves"!
All true. All drawing eyes away from purpose and onto effect. Like towards weapons of mass destruction... and away from oil.
But we who would enjoy our time on earth and advantage our DNA above that of others... well, we are supposed to be intelligent. Able to peer through these illusory tricks. Blink, adjust to the light, and look around. Check weapons and go to first principles.
The company exists to the benefit of shareholders. We own it and it reports to us! Not in and of itself, but for our benefit. Every dime is ours.
There are three reports that the company issues to us. The first is the Piggy-Bank report. How much went in, and how much went out. Cash is king, we ignore this at our peril.
But the Piggy-Bank report ignores a whole host of IOUs and UOMes and all the other non-cash toys littering the kingdom. All of which have value. And if we only watched the King, soon we'd find ourselves feeding a Queen and Princes and Princesses and a Pope and Parliament. And Dictators, Duly Elected Officials and Bureaucrats... And then some. Scampering around totally out of control. So we have the "Add it all up" report. Which tells us what the whole mess would be worth, subject to a few "if onlys" in small print.
Small print worth reading, because often we read that most of what it all adds up to is nothing more than blue sky. And if we only look at the size of the sky we might find ourselves starting with a small pile of something and ending up owning a whole bunch of nothing. So all laid out most carefully in Very Large Print there's the all important "What It Costs To Add A Buck To The Pile" report. Which is how we judge management and the profit capability of the enterprise itself. Less than a buck is good, more than a buck is bad. The point of the exercise is for us, shareholders, to end up with more, not less.
And with these three different tools we are equipped to make effective capital allocation decisions.
Now me, I'm quite fine with arguments suggesting that options don't affect cash flow and thus don't belong in the Piggy Bank report. And perfectly fine with the theory that they don't affect what it all adds up to so they don't belong in the Add-it-all-up report. See, you and I, we agree.
However, stock options in and of themselves are a cost of adding bucks to the pile. And thus belong in the "What It Costs To Add A Buck To The Pile" report. Not unlike salary, bonus and other forms of remuneration. Whether we part with the actual cash before actually getting it back from the company or afterwards does not change the existence of the cost or who pays the freight. It's still our money going to employees. Us being shareholders.
Of course, there is another equally valid point of view. If we adopt a mercenary stance and treat shares as a trading currency, we can still make out like bandits. All we need to do is find someone else willing to take them off our hands at a higher price. By hook or by crook, perhaps the end justifies the means. At least individually.
But we would want to call ourselves "speculators" then, not "owners". And then we would be wise to realize that in this realm, none of the reports matter at all, so arguing back and forth about what should or should not be accounted for is a complete waste of oxygen. Change from basis is important, not the basis itself.
And more important we need to realize that we can't all win this game. Some will win, some will lose and the net will be the sum of all profits, minus all costs. Minus commissions to the blokes who arrange this adult game of hot-potato. Which end result is and will be a matter of fact, not one of accounting.
And it is on this pivotal point of the end result that the two viewpoints converge. In the end, all speculators, taken together, can do no better nor worse than those who were owners all along (taken together), save that the former will have incurred frictional costs of commission along the way while the latter will not.
Those who 'account' for this mid-point most accurately can wield the systemic biases of those who do not to competitive advantage. In either field of play!
For owners need not hold from cradle to grave. And speculators need not buy back what they have sold. In retrospect it's merely a matter of buy low and sell high.
Looking forwards? Well, that's another matter. Accounting is merely a financial theodolite with low temporal significance. Not everyone knows how to use these things, nor cares.
Helps to keep perspective. Besides, a far larger game is afoot, drawing eyes back and forth between $USD [or HKD or Q! for that matter] and AU... A massively hypnotizing gleaming pendulum in the shape of the holy grail. Questing after it, the haves are busily going about the business of parting have-nots with the little that they still have. And the busy have-nots are doing their best to do unto others what others are doing unto them. And it all goes round and round.
Same as it ever was.
The little tricks of the light along the way that one side uses to disadvantage the other are mere diversions from the main theme. The greatest show on earth.
"No, nothing up your sleeve, but what's that there inside the lining of your coat near the slit at the collar?"
John |
