Stocks, Part 2

Last we gathered, we were discussing the merits of your buying a share of my cheese-making operation, available for the bargain price of $400. Granted, I have not made any actual cheese, but on the other hand, I also have no expenses … or employees. But it’s gonna be beautiful cheese, I promise. Tremendous cheese. I’ve laid out all the pertinent information you’ll need to make your investment decision here in this 72-page prospectus that exactly three people will read, two of them paralegals for the securities lawyer who wrote copy-and-pasted it from the last prospectus he put together (Ctrl-H, yo).

Whaddya think?

Some people who invest in a share of stock do so because they think they’ll be able to extract more value from that share than what they paid for it. If you buy 1% of my cheese company, what kind of value does that entitle you to? What do you actually get? As I get my enterprise off the ground, probably not a whole lot at the beginning. Maybe an annual newsletter with some photos of my cow(s) and some circa 1999 clip art:

Over time, though, as my operation scales—yes, the magic business-y word!—and celebrities start being photographed eating my … I mean, our products, and we start making more money than we spend (LBYM … with companies), you’ll start collecting your 1% share of any profits. Let’s say we sell $1,000 worth of cheese at the big farmer’s market in town, cheese that cost us $900 to make, wrap, label, transport, display, and tout. Whooo! We earned $100. Of that, you get … $1. That’s more or less how it works. That’s what a share of my cheese company gets you and that’s what a share of just about any company gets you.

Since you paid $400 dollars for a 1% share of my company, you must believe that we’re gonna take over farmer’s markets all across America and you’ll be getting that $400 back—and then some—over my company’s lifetime which will be, of course, forever. Or at least until the planet burns up from all the methane the cows are producing. If you don’t believe you’ll ever recoup your $400 investment from all those 1% shares of future profits … you must be a different type of stock investor.

Some people who invest in a share of stock do so because they think they’ll be able to sell it to someone else for more than they paid for it. Given how widespread this belief is, there is even a name for this philosophy—the greater fool theory. If this is your investment style, whether my cheese company has profits, or even … cheese, is irrelevant. You just need to believe that someone else will think a share of my company is worth more than $400, hopefully a lot more. Please note that there appears to be more than one fool in the greater fool theory.

Finally, some people who invest in a share of stock do so for completely non-monetary reasons. These people are called Green Bay Packers fans. Yup, you can buy stock in your hometown team, but only if you live in Green Bay, Wisconsin. The Wall Street Journal once asked whether this was the worst stock in America. On paper, it certainly seems so. You can’t trade your shares, have no voting rights, and receive no earnings. You literally paid $250 for the privilege of saying you’re a part owner of the Green Bay Packers … you and 361,168 others. Then again, you receive an actual piece of paper—the stock certificate—which you can frame and hang on your wall and show your buddies when they come over to watch the game … since buying a share of stock doesn’t move you any higher on the season ticket holder list either.

Crazy? Maybe. But is it any bigger a (Lambeau) leap of faith than investing in my cheese company?