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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Boca_PETE who wrote (30715)	2/18/2002 4:19:51 PM
From: Night Trader	Read Replies (1) \| Respond to of 99280

Pete, Thank you for your informed and considered response. I tried hard but I couldn’t find fault with your cash flow analysis. However I am still against the liberal use of stock options as I shall explain. As I said earlier, options as a replacement for compensation should not be looked upon as a onetime event but as a continuing process of disenfranchising the shareholder. A dilution of 1% a year may not sound much but you must remember the following fact which may surprise you (it certainly shocked me): the long term real growth in US EPS has only been between 1% and 2% a year and less than GDP growth. The total return has been a little more than GDP growth due only to dividends. A stock market that starts to dispense options on a free for all basis thus discounts a large portion of its future long term growth. Tell me how many people take into account ongoing dilution (that is, not just this year but all years in the future) before buying a stock? How many even know they should? Almost none. You said in answer to my example that the option dispensing company deserved a higher valuation because its management was more clever in its accountancy. Surely the worth of a business is not in the cunning of its financial engineering but in the actual day to day operations. We’ve seen some recent examples of the road such “cleverness” leads to.