Personal Initial Public Offering

A guy calling himself KmikeyM is trying to sell himself literally, by selling one hundred thousand shares each worth one dollar. He seems to be taking his IPO (initial public offering) quite seriously. KmikeyM lets shareholders vote on his projects. He also reports regularly like any public company is supposed to.

Is this a good idea? Obviously you shouldn’t let your shareholders run your life. Apple doesn’t do that, neither should you. So it’s best to be a majority stockholder at all times.

Shouldn’t KmikeyM have issued bonds? With bonds you have to pay back the principle at a certain date (it’s a loan), for instance close to retirement. However, you are obliged to periodically pay fixed amount of money. With stock shares you can pay out dividend, but this is not mandatory and you can change the amount, in any way you like. Of course, this is not the whole story. You have different types of stocks and bonds including hybrid forms. Bondholders are creditors, while shareholders own a piece of you. It’s a totally different relationship.

How about options or futures? I don’t think it makes sense to offer derivatives unless it’s a huge market. It might not be a good idea to allow shorting either. Short selling is the practice of selling securities without owning them (they are borrowed) in the hope to make profit buying them back at a lower price. Shorting makes things complicated and can drive the price down.

Valuation

KmikeyM basically put a price on himself. He said to the world – I am worth about one hundred thousand dollars. In principle any money he earns in the future has to be indirectly divided amongst his investors. The same goes for his life insurance. That’s a a scary thought. He might be worth dead more than alive. Okay, maybe he should offer put options to his investors.

Let’s have a look at the price-to-earnings ratio (PE). Each share cost a dollar. A PE of 17 or lower is considered good value. For convenience let’s assign KmikeyM a PE of 10. This means that he would have to earn 10 cents per share annually. Which comes to ten thousand dollars for all the shares that he wants to issue. That seems reasonable and he can get away with earning less.

How about dividend? I think that if you are going to sell yourself like that, you shouldn’t pay dividend or very little dividend. You have to keep in mind that your earning power is not constant. One day you will retire or you might get health problems. If the investors don’t get dividend they have to earn money by selling shares. Or buying the majority of the shares, gaining control and then liquidating your assets.

Another thing you should definitely do is buying back your stock whenever a huge drop in the price occurs. This is needed to keep control. It is recommended to have stock splits too when the stock price goes above 100 dollars to keep small investors interested.

Growth

Investing in somebody who is in his thirties is like investing in utility companies. They pay a decent dividend, but don’t grow very hard. You are better off investing in an exciting dotcom startup. The equivalent would be someone in high school who is creating apps for mobile phones. Such a person would be cheap initially, but would have a fast growing earning potential. There would be no dividend of course. In fact you could lose all your money. However, if you invest in a dozen of kids like that, one of them may repay your investment thousandfold and compensate you for the Johny Nogoods.

Capital Allocation

Okay, you have sold your stocks. What are you going to do with the money?

  • You could reinvest it.
  • Start a company that for instance is working on a Google Reader clone. But then you could have just as well sold shares in your company.
  • Mine for Bitcoins. This means buying special hardware. With 100 K you can buy a lot of hardware. Trouble is that the Bitcoin value fluctuates a lot.
  • A creative project. For example, writing a self-published book.

Now that I have listed the options that come to mind I realize that you can create a company around a software application, but not around a self-published book. Strange.

What would I do?

Myself, I think I would have sold bonds of varying maturities. The coupon rate would be very low. A little bit more than you would get for saving deposits of similar duration. And  I would try to collect much more than 100 K. The money would be sprinkled around as follows:

  • Gold.
  • Shares in large cap and small cap companies.
  • Small local businesses via crowd funding websites.
  • Bonds.
  • Bitcoins and maybe even ASIC hardware.
  • Self-publishing books.
  • Android and iPhone apps creation. I think that I would have to hire people to help me with that.

If you would like to invest in me, please let me know in the comments. Name your price. I am curious 🙂

Disclaimer: slavery was abolished a long time ago, so this scheme only makes sense if you are desperate for money. This post should not be interpreted as advice.


News for March 29, 2013

http://storify.com/inningPalmer/news-for-march-29-2013

By the author of NumPy Beginner's Guide, NumPy Cookbook and Instant Pygame. If you enjoyed this post, please consider leaving a comment or subscribing to the RSS feed to have future articles delivered to your feed reader.
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