Tippet:
A certain article in a N.Y newspaper of a few weeks ago covered this topic. I happen to know that the brass at MSFT took exception to the article, particularly as that company doesn't report put premium income as income, but as an addition to cash flow. An accounting nicety, but as was mentioned to them, certain other points are relevant:
- Investors think they are buying a software firm, not a hedge fund when they purchase MSFT stock.
- Incoming put premium sure doesn't have much expense attached to it and hence has remarkable impact on either the bottom line, or on the company's cash position.
- few companies would dare to initiate a put selling policy without a big share buy-back situation in place. These share buy back programs are doing two things,....eating up valuable cash (and/or creating added debt) as well as reducing actual shareholder equity in a most sneaky fashion.
- Does it make sense to buy back stock at a multiple of what that same stock was sold to the public a few years earlier?
- Above all else, the liability is massive. MSFT had some 85 million shares at risk at the time. If the market had let go, several billions of dollars worth of that company's cash hoard could have disappeared.
- Many investors are unaware of the existence or impact of the practice.
Incidentally, I note that INTC seems to be extricating itself from this seamy business, per their last report. Maybe they got the message. (g)
Best, Earlie |
