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A L S O_ T O D A Y
T A B L E__T A L K What's wrong with cyberspace? Take a moment to vent in the Digital Culture area of Table Talk
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You've also argued that relatively small floats -- the percentage of shares outstanding that are actually held by the public -- among new stocks contribute to that. The small float is one of the things that makes these stocks appealing -- because the money here is made in the volatility of the stock, not in the ability of the company's management to manage its affairs. The whole thing is focused on creating a wild imbalance between supply and demand, and from the point of view of the day traders, it really doesn't matter which way the imbalance flows. So it's not that the small float vs. shares outstanding is contributing to this. What's happening is that investors, or speculators, in this corner of the market actively seek out very small, thinly traded stocks. This was happening on Feb. 8 with a stock called Micros-to-Mainframe, just to give one small example. This stock traded nearly 8.8 million shares and went up 40 percent in one day. That was all run off the chat rooms, because the company had put out a press release saying they had opened a Web site. None of that reflected any calculation whatsoever of the value of that business. That's irrelevant. What mattered was that a bunch of chat rooms piled onto this stock -- and because one went into it, the others followed. Can you explain a bit about float vs. unregistered stock, and how you think these numbers are out of whack in so many recent initial public offerings (IPOs)? How can a relatively small float make for an inflated company value? Float is one of the most misleading statistics published in the financial world. People rely on official float numbers at their peril. When a company goes public, usually it sells a limited number of shares to the public, and a large number of shares are held by individual officers, directors and so on. Typically speaking, those shares are not registered for sale to the public. They become what's known as "lockup shares." Securities and Exchange Commission rules say unregistered shares normally can't be sold for 180 days after the first shares sold to the public go to market. The combination of the total number of shares sold to the public plus shares in the lockup is the total number of shares outstanding. The "float" refers only to the portion of total shares outstanding that are sold to the public. Now, when you have a new company that has just gone public, figuring out the size of the float is extremely easy, because the float consists of nothing but the shares sold in the IPO. After the thing is publicly traded for a little while, it gets more difficult to figure out what the float is, because some of those unregistered shares might get sold to the public. Or the company might issue new shares out of its own treasury and buy another company, as Yahoo has done and Amazon has done. In most cases, after a while the float is bigger than it was when the company originally went public. The problem is that most of the data providers don't want to take the trouble to go back and look up every single S-4 registration statement, and find out how many shares are actually sold to the public. Do you do that? I do that constantly. So I know my numbers are right. It's a pain in the ass and it's really anal and I don't like doing it, but it's the only way you can get the right number. You've got to go back and sit there like some moron, hour after hour, adding up every damn unregistered stock filing that's been done by the company. What's the biggest gap you've found between actual and perceived float? I did it with Amazon, and found that the numbers being put out by Market Guide were nuts. They were crazy. They were saying there were 20 million shares in the float. We did a story [last July] demonstrating that there could not have been more than 7 [million] or 8 million shares at the most. And the reason this is important is that it explains why Amazon got so pricey. I really feel strongly about this, because there was a large amount of misleading commentary about what this price rise meant. And a lot of people were saying that investors had come to the conclusion that the value locked up in the Amazon franchise was almost limitless. But the reality of it was that there were momentum traders chasing this stock that they couldn't find. There wasn't enough stock around to justify the demand, and the price went up. And when I look at what's happened to Amazon in the last three weeks, I feel very good about that story, because it's given up half its value. Do you take any credit for that? No, I don't take any credit at all. I didn't make that happen. I just know why it happened. Now, if I can just stay with this for a second: I'm looking at the Market Guide numbers for Amazon right now, and they have Amazon's float listed at 61.8 million shares as of Feb. 5. There is no way that that's true. That stock split twice [since the July article estimating Amazon at 7 million or 8 million shares], which would take it down to 15 million. A 15 million-share float would mean that the float has doubled [since the July count] just from officers selling their own stock. There's no way that's possible. The officers of the company have filed to sell only about a million and a half shares since we did our story last July. If you add that to 7 or 8 million, that doesn't come anywhere near the size of the float that the public thinks is out there. So where would a number like that come from? They're just calculating an arbitrary thing, taking the total number of shares outstanding, and subtracting the number of shares held by officers and directors, and calling everything else the float. The correct way to do it is to go and count how many shares have been sold to the public. That explains why prices swing so wildly. But since day traders are chasing volatility anyway, who's being hurt? Stupid people. The cleverest people on the planet Earth work on Wall Street. In a bull market everybody thinks he's just as clever. But they're not. It's really tragic when people think that because the stock market has gone up 12 straight years, this is the new condition of life. N E X T_ P A G E .|. Why day traders are like gamblers who think they can beat the house |
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