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Author Topic: The expectation of div's sets the world of crypto-stocks off on the wrong foot  (Read 1767 times)
canuck
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June 27, 2013, 05:07:01 AM
 #1

So before anything else, I'm not here to say that demanding BTC stocks to pay div's is a bad thing.  Certainly, dividend paying stocks are valuable and we should foster their growth but it's that fostering of growth that I think some people are missing in this unique investment space.

There's a gold mining company in my region that makes for a great investment.  They constantly work on expansion and keep investors well informed whenever they're pouring a new brick.  Their employees get great stock options and I know of at least one investor personally who has made a great deal of money from this stock.  It doesn't pay dividends to investors.

I think that this is a class of stock that the Bitcoin world is missing in a superficial sense.  There certainly are companies that have displayed potentially incredible long term investment value as well planned businesses but the focus seems to be on bitcoin mining bonds and companies that will produce dividends and quick income for investors.  To me, this is a disappointment.  I like div's as much as the next guy but when it comes to the world of bitcoin investment, it seems to be the primary focus and among most investors, the chief concern.  I'm in fact inspired to write this (admittedly clumsy) post after having just read from another forum poster about how they would never invest in a company for reasons of dividend payment prospects with no regard to the company's value.  CAVIRTEX's offering on Havelock has been talked about negatively as well for not paying div's as they instead decide to use those funds for the company's growth which increases shareholder value.

I guess what I'm trying to say is that it just seems to me as though investors here seem to, in a big way, disregard shareholder value when looking at a company as an investment candidate in favour of evaluating the company's ability (or potential ability) to pay regular dividends to shareholders which is in fact a drain on company resources.

I'll close with a simple example comparing a div' paying business to a non-div paying business.  We'll say they have 100 shares.

-Business A has revenue of 1,000 BTC per month and costs of 800 BTC per month leaving a profit of 200 BTC.
-Business B has revenue of 1,000 BTC per month and costs of 800 BTC per month leaving a profit of 200 BTC.

-Business A pays out 80% of company profits in dividends leaving the company with 40BTC profit.
-Business B pays no dividends leaving the company with 200 BTC profit.

-Business A adds 0.4 BTC per share in company assets to the balance sheet.
-Business B adds 2.0 BTC per share in company assets to the balance sheet.

Again, this is not to say that dividend payments are a bad thing.  They're great but when a company is making div' payments, investors should, I think, more actively consider how much in value those dividends are sucking out of the company over the long term and whether or not that value loss is properly balanced.  It helps of course too to reduce that value loss when companies hold dividend paying shares themselves.  In short, dividends and adding to a company's value is a careful balancing act and I think many investors don't realize it.
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June 27, 2013, 07:33:57 AM
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You nailed it, but the problem is trust. Beyond that, it is sometimes a matter of opinion whether or not an invetsor is a better money manager than a company. Can a company provide a better ROI than the investor can by investing somewhere else? Personally I like to return some of the money to shareholders for just that reason, while still keeping a significant portion for reinvestment. Best of both worlds strategy.

In the future I expect 10% a year to raise a red flag, not look like a shitty investment. Right now if your not paying 50% a year or more you're looked down upon. it seems people still haven't learned from pirate Smiley
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June 27, 2013, 08:01:19 AM
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The reason there's such a big emphasis on dividends is because there's so little trust, and rightly so.

People want to buy, collect some dividends and and then get out quickly.. not watch the incentive slowly increase for the owner to disappear.

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June 27, 2013, 09:09:46 AM
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Given the history of bitcoin "companies" (many of which haven't even proved to be companies), some of which had committed fraud, been hacked to death because of incompetence, been shut down by banks, are you really surprised that people demand dividends?

Given all these risks, plus government interference, lawsuits, its just not tenable that investors will buy into the current crop of bitcoin companies long term unless they get dividends. Who cares if a company increases its share price 10x and disappears in a puff of smoke the next day?

Much better to collect dividends along the way for now, and reduce risk
radiumsoup
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June 27, 2013, 01:34:43 PM
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I gotta echo the trust issue. Until some established company with actual legal recourse to investors in the event of a default becomes available on the BTC markets, investors will demand a vehicle for return of capital in forms such as dividends.

There's not going to be a Berkshire Hathaway of BTC for a very, very long time. (I was going to use Apple as an example, but even they are paying dividends now, despite Jobs' longstanding vehement opposition to the idea.)

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June 27, 2013, 01:52:43 PM
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With LTC-ATF I only pay dividends if we can't use the cash ourselves.  In the 9 months we've been operating we've only twice paid dividends - once for 200% initial share price and more recently a dividend of 50% initial price.  The rest of profits have been retained (giving 440% growth in NAV/U as of right this instant).  Paying dividends at all only happened at MY request - as I felt we were sitting on cash we couldn't use.  Investors seemed perfectly happy with all profits retained.

Dividends are widely used as a crutch to give the impression of profit whilst loss is what's actually occuring.  PMBs are the classic example of this - explicitly designed to devalue whilst paying out dividends.  There are also a LOT of stocks/funds which pay dividends where the dividends aren't actually profit - just revenue.  Generally these are ones where the manager gets paid a percentage of dividends - so has a clear incentive to pay as many dividends as they can regardless of whether they reflect real profit or make sense from a business perspective.

The argument that getting something back is wise in an evironment of regular failure/scamming is a flawed one.  If that significantly concerns you about a specific investment/issuer then you shouldn't touch the investment at all - whether they pay dividends OR retain profit for growth.
canuck
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June 28, 2013, 01:56:20 AM
 #7

Insightful responses. I agree that the trust factor is a big issue right now and something I probably don't consider with enough weight.  It seems that bitcoin investors lack a certain badge of trust that traditional regulators are supposed to supply.  The SEC in the USA for instance is supposed to ensure that security issuers are playing by a certain standard set of rules so investors need no sweat the small stuff.

Perhaps what bitcoin investors need is an independent auditor with a specific set of technical criteria for evaluating publicly traded bitcoin companies.  A group dedicated to providing audits of financials, share structure, true capitalization ratings, debt and credit ratings etc etc.

If trust is the big issue here, (and upon some consideration I would agree that it is) then it would seem that we need a sort of better business bureau of the bitcoin securities world. Like a seal of approval not to provide endorsement of a company per se but rather to provide assurance that a certain set of standards have been observed and met by the company being rated that would be of relevance to crypto-stock investors.  Has anyone tried to do this sort of the a thing before?
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June 28, 2013, 02:10:21 AM
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Insightful responses. I agree that the trust factor is a big issue right now and something I probably don't consider with enough weight.  It seems that bitcoin investors lack a certain badge of trust that traditional regulators are supposed to supply.  The SEC in the USA for instance is supposed to ensure that security issuers are playing by a certain standard set of rules so investors need no sweat the small stuff.

Perhaps what bitcoin investors need is an independent auditor with a specific set of technical criteria for evaluating publicly traded bitcoin companies.  A group dedicated to providing audits of financials, share structure, true capitalization ratings, debt and credit ratings etc etc.

If trust is the big issue here, (and upon some consideration I would agree that it is) then it would seem that we need a sort of better business bureau of the bitcoin securities world. Like a seal of approval not to provide endorsement of a company per se but rather to provide assurance that a certain set of standards have been observed and met by the company being rated that would be of relevance to crypto-stock investors.  Has anyone tried to do this sort of the a thing before?

It hasn't been done.  And in truth it can't be done honestly.  You would struggle to find a single company to actually recommend.

The history of bitcoin securities is an ongoing debacle of lost investor funds and enriched stock promoters.  With a side course of shell games and craziness if you include Usagi who sold a dozen interlocking securities while pretending to be a young girl from Japan.
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June 28, 2013, 02:17:46 AM
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Insightful responses. I agree that the trust factor is a big issue right now and something I probably don't consider with enough weight.  It seems that bitcoin investors lack a certain badge of trust that traditional regulators are supposed to supply.  The SEC in the USA for instance is supposed to ensure that security issuers are playing by a certain standard set of rules so investors need no sweat the small stuff.

Perhaps what bitcoin investors need is an independent auditor with a specific set of technical criteria for evaluating publicly traded bitcoin companies.  A group dedicated to providing audits of financials, share structure, true capitalization ratings, debt and credit ratings etc etc.

If trust is the big issue here, (and upon some consideration I would agree that it is) then it would seem that we need a sort of better business bureau of the bitcoin securities world. Like a seal of approval not to provide endorsement of a company per se but rather to provide assurance that a certain set of standards have been observed and met by the company being rated that would be of relevance to crypto-stock investors.  Has anyone tried to do this sort of the a thing before?


That is in conflict with the spirit of bitcoin. YOU are the Better Business Bureau. Vote with your money, vote with your trust. Be informed because you ARE informed.

Have you ever dealt with a BBB or a Chamber of Commerce or a business lobbying group? The more authoritative each grows, the less effective and more untrustworthy each becomes.
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June 28, 2013, 02:26:39 AM
 #10

See https://bitcointalk.org/index.php?topic=200666.0

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canuck
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June 28, 2013, 01:43:36 PM
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Apologies for the myriad of typos ahead. On my mobile trying my best to catch em all. Smiley

I certainly don't agree that it can't be done nor do I agree that such an idea is an antithesis to the spirit of Bitcoin. In fact, I think that is a little assumptive. Were such an organization monopolized and given rights of compulsory membership then sure, it would be entirely incompatible with Bitcoin but that's not what I was thinking.

I agree that the BBB for instance is terrible. They have dealt with criticism for instance for posting negative ratings on companies that do not wish to pay them a membership fee and in a centrally planned society with little emphasis placed on insurance or market accountability, I can't say that surprises me. The Bitcoin economy is certainly one that has yet to properly mature and I think there is wonderful potential for trust to be facilitated voluntarily and in an organized fashion as provided by a free and rationally coordinated market.

I think TAT, that you're advocating eternal vigilance and complete due diligence on the part of investors and I believe this position is one of fantasy. I don't believe it's reasonable to expect that of anyone unless they make it a full time occupation. This is why organized trust rating services are valuable.

Much more interesting to me is the assertion that currently, such a service as I briefly outlined above would be hard pressed to find a company to rate positively. I think that this is not an unreasonable contention. I would hope that initially, a trust rating org' would display value to honest business owners who want to raise capital from the market. If properly set up, such an organization should give honest business people a free market incentive to be rated. How to properly do that, I've not a clue but initially, I think of people leveraging established credibility and relevant skills in selling the idea publicly.

If I were the owner of a business I wanted to take public, I would have a rather large concern in mind. How do I convince investors that I'm not gong to take their money and run? If I am seeking say 1 million dollars, it may be that an independent auditor that provides a transparent trust rating presents real value to me.  An ace business plan is good but even the best plans are nothing more than talk if not coupled with some source of credibility. If Intel for instance announced a Bitcoin ASIC tomorrow, their massive established credibility would probably even negate the need for a publicly scrutinized business plan. That credibility has real market value. I think Bitcoin startups and investors would both be well served if someone found a way to provide that opportunity on demand.
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June 28, 2013, 02:08:38 PM
 #12

Congrats on not mentioning S.MG, the one company that actually dares challenge these stupidities.

Congrats on not sucking MP's cock, the one person who's actually been pushing this entire herd of cats that masquerades as a community, kicking and screaming, slowly up the steps towards some semblance of functional finance.

Congrats on being clueless, as all the rest of them, and speaking out of your cluelessness, as all the rest of them, because research is hard and opining is all you need to do anyway.

Well done, now stfu and lurk moar.

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ThickAsThieves
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June 28, 2013, 02:22:11 PM
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I think TAT, that you're advocating eternal vigilance and complete due diligence on the part of investors and I believe this position is one of fantasy. I don't believe it's reasonable to expect that of anyone unless they make it a full time occupation. This is why organized trust rating services are valuable.

I both totally agree and totally disagree with you. Yes, it is a fantasy to expect the current investor pool to be responsible, etc. Yes, this is a job best suited for those that make it a full-time occupation. No, this is not how a trust rating service could save the day.

Much more interesting to me is the assertion that currently, such a service as I briefly outlined above would be hard pressed to find a company to rate positively. ... How to properly do that, I've not a clue but initially, I think of people leveraging established credibility and relevant skills in selling the idea publicly.

Nor would the trust agency. Trust is passed on from trustworthy people and earned through trustworthy experiences. A lack of trustworthy businesses does not command a need for a trust-bestowing agency. If there are not enough hot women in the room, do you hire someone to determine whether a woman is hot or not?

If I were the owner of a business I wanted to take public, I would have a rather large concern in mind. How do I convince investors that I'm not gong to take their money and run? If I am seeking say 1 million dollars, it may be that an independent auditor that provides a transparent trust rating presents real value to me. 

If you are a business it is your own job to communicate and DEMONSTRATE value and trustworthiness. Really, if you were that great of a business, your real issue would be finding a bitcoin exchange professional and trustworthy enough to consider listing on...
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June 30, 2013, 07:55:15 PM
 #14

Canuck: The HIM fund on Havelock tries to balance both value and dividend. We pay out approximately 50% of the generated revenue from mining every month. The other half goes to expenses and retained earnings for re-investment.  Its why we're able to add ~3TH in the coming months _without_ having to issue new shares to raise extra capital (and dilute dividend per share). I think its a win-win for everyone, but agree with everyone else here, TRUST and doing your own DUE DILIGENCE are essential.


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