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Unrealistic Stock Prices / Values
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Henry King RJ: Business Tycoon CO: BusinessTycoon Post Rating: 0 + / - Total Posts: 83 Karma: 13 Joined: May 31, 2013 |
Posted on Sep 6, 2013 I recently sold 51% of the stock in one of my companies to another player. The transaction was a reasonable one, and the price paid was about 30% more than the book value of the company, but a fair price given the time required to build up the business and get research up to high values.After the sale, the buyer suggested that I sell a very small number of shares of the company, which we each own half of the share of, to him at a very high price, which was 1000 times the price that was actually paid for most of the shares sold. The purpose of this last sale, of a few shares, was simply to boost up the stock price shown for calculation of net worth up to a very high level. With this creative transaction, the "value" of the public shares (which are only owned by two companies, so not very public, but it is called public), then skyrockets, and the net worth of both of our companies increased to the point where we are now both in the top 20 ranks by net worth as players. After looking at this some more, it is clear that some players have already done this, and we were not the first to discover this idea, but maybe we did it on a larger scale than many players who have used this trick have done in the past. My thought is that company stock should not simple be valued based on the last transaction, especially for a closely held corporation with only two or a few stockholders, but stock should instead have some value that is based on a multiple of earnings and maybe some maximum ratio of book value of the company. Stocks could be traded at any price that players want, but over time, stock value should not simply be determined by the last trade of shares, but it should move each day towards some fundamental value of the company based on stock fundamentals and some independently calculated assessment of value by the game. Inventory has an independent value determined by the game which is independent of what it was sold for between two players. Why shouldn't stock have the same type of independently determined value, so tricks with stock price can be played, but won't have any significant lasting effect, as stock prices migrate toward a more reasonable value over time after any such extreme trades are done. |
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Henry King RJ: Business Tycoon CO: BusinessTycoon Post Rating: 0 + / - Total Posts: 83 Karma: 13 Joined: May 31, 2013 |
Posted on Sep 7, 2013 I have asked this player to reverse that high priced transaction, as I am not comfortable having my company value artificially inflated in that way. If he wants to do that with someone else, that is fine. I just don't want to be a part of anything that looks like stock market manipulation simply to artificially inflate company net worth on the stats.In looking at the stock listings, I have noticed a few other extreme examples, that I thought might be worth mentioning on the forum, as a sort of hall of fame or hall of shame of stock manipulations that appear to serve little purpose other than to increase player net worth on the ranking stats. Posted below are the three most extreme examples that I found looking at listed stocks: DEPRBVRG 11.5 Trillion market value, for company with 216 Billion retained earnings, so increase in net worth of the Chairman of the company, Herb Derpman, of 11 trillion bucks (which is most of his personal net worth status of 12.6 Trillion total net worth). SHIT 11 Billion market value, for a company with only 23 million retained earnings, so a multiple of retained earnings to stock value of 478 times higher stock than book value. Not a huge effect on overall player ranking stats, but a nice boost to Chairman Edqmaster. WY 704 Billion market value, for a company with retained earnings of 573 million, which results in an incredible market value to book value ratio of 1228 times multiple. A nice boost as well to the net worth of the company chairman Von Dutch. There were other stocks two or three days ago which were similarly extreme in price to value, but some of those stocks have since then been traded at much lower values. It appears that my post on the forum about this issue may have caused some players to wonder if it was such a great idea after all to engage in stock manipulation to artificially boost net worth of the players involved. I don't think such sales should be punished, but I do think that stock values posted on the stock market should not simply be determined by whatever price two shareholders decided to use for their last transaction in buying and selling shares, especially when it is possible for a player to jump up to top ten ranking in the game in player net worth simply by making a change in stock price for a few shares traded in a corporation owned by only two players. That is not really a reasonable representation of true value of the stock, but simply a way of manipulating net worth by increasing stock price. |
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Melinda Lastman RJ: 4egerd CO: Canadian Capital corp. Post Rating: 0 + / - Total Posts: 11 Karma: 11 Joined: Jul 6, 2013 |
Posted on Sep 9, 2013 Well what you are describing is a lack of liquidity in the market. A bond market as a method to raise capital is way more suitable for this simulation as bond markets can fulfil its obligations to the investors and companies alike as a way to invest and raise capital.
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Henry King RJ: Business Tycoon CO: BusinessTycoon Post Rating: 0 + / - Total Posts: 83 Karma: 13 Joined: May 31, 2013 |
Posted on Sep 12, 2013 We have a bond market already, which is essentially the same as a loan. You can borrow up to 50% of the net worth of your company via loans, at reasonable interest rates. Not cheap, but affordable given the returns that you can make from investing the borrowed capital.
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Melinda Lastman RJ: 4egerd CO: Canadian Capital corp. Post Rating: 0 + / - Total Posts: 11 Karma: 11 Joined: Jul 6, 2013 |
Posted on Sep 12, 2013 What about the investors with excess cash that may need to generate extra income. there is a difference between the loans and bonds. If we had bonds it would be trade able and investors can price the bonds to the effective yield. I must admit here is a little bis of financial acumen required to manage in the bond market however the nature of bonds as a fixed cash flow with repayment in the end will reduce the quagmire in the equity market. Most developing economies have a bond market function before equity markets.
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M Burch RJ: Farmerbob CO: Farmerbob Post Rating: 0 + / - Total Posts: 151 Karma: 14 Joined: Sep 2, 2012 |
Posted on Sep 15, 2013 Why not just weight the stock share valuation growth proportionately, or maximize stock gain in a ratio related to calculated company assets? In other words, do not limit growth over time, but limit growth in the short term. This isn't a full fledged market game, we can't have realism in the market, but that means we can't have real self correction. We need some sort of code governance of public company valuation - something similar to this does exist in the market today. If stocks drop too far, too fast, trading is frozen. This would be something of the opposite.If players with too much cash are allowed to invest in ways that let them generate even more cash quickly, err, well, that is going to lead to more problems. What I'd like to see for players with too much cash is perhaps charity donations for influence. Influence would then be used for improving the company directly. This would allow a player with tons of cash to "buy" influence, and reinvest it into their company. |
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Edwin Quintanilla RJ: EdqMaster CO: Edqmaster Post Rating: 0 + / - Total Posts: 74 Karma: 9 Joined: May 3, 2012 |
Posted on Sep 19, 2013 In reply to Business TycoonSHIT 11 Billion market value, for a company with only 23 million retained earnings, so a multiple of retained earnings to stock value of 478 times higher stock than book value. Not a huge effect on overall player ranking stats, but a nice boost to Chairman Edqmaster This was my Transaction for SHIT. I still have hold outs the only reason I bought These company was in the hope that I could make them private. SHIT 1,000 $10,099,998.99 ($10,099,998,990) Aug 7 In reality the companies are worth what ever someone is willing to pay I had the cash it was cheaper to buy a public company then it was to buy more private land and establish another company. |
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Melinda Lastman RJ: 4egerd CO: Canadian Capital corp. Post Rating: 0 + / - Total Posts: 11 Karma: 11 Joined: Jul 6, 2013 |
Posted on Sep 20, 2013 M Burch the only way to do this is to use free cash flow calculation but the accounting must be fixed first because free cash is not calculated and net income is tainted by capex. Risk (discount rate) could be measured by volatility of cash flow and growth measures by cash flow growth. then we can use the Free cash Flow model: fcf/r-g to price the equity. The same can be applied to dividends with an added boost to valuation for dividend payers.
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