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Roadmap 04/11 (click here to expand/collapse)

Below is the Roadmap for select April 2011 website articles.    Please note  the website contains many more articles covering these same topics. For example, pre-game is integral to our program for attracting better R&D investment opportunities.

Provide Predictable Funding for Unpredictable R&D+
(Introduction to Franchise Capital Mgmt.)

Make funding more predictable (From Unpredictable R&D to Predictable Investor Returns)

  Attract and Retain Long-Term Investors

– Make a Market (You Have to See It to Believe It)

  Reinvest Interim Windfalls+

Make R&D success more frequent * (Execution is the Key to Success)

  Get Smarter at Tracking R&D Advancements+ and Transitions+ (Exits)
  Attract Better R&D-centric Investments
  Increase R&D Productivity (Execution is the Key to Success)

* Although it's still unpredictable

As funding agent+ we match investors and investments (owners of intellectual property+). Our role as funding agent (as middleman) is to keep investors happy, thereby ensuring steady funding for investments. We do this by packaging unpredictable R&D investments into an offering that is more attractive for investors (the perpetual fund). We do this by direct mediation into our unpredictable R&D investments (via franchise operations+), to ensure above-market productivity. Above-market R&D productivity is the only reliable means to ensure predictable funding.

You Have to See It to Believe It

Summary: 

I’ve seen steady share price increases that have spanned decades and weathered many recessions. There was one woman in charge for 30+ years.

Introduction

Archimedes Lever. Wall painting in the Stanzino delle Matematiche in the Galleria degli Uffizi (Florence, Italy). Painted by Giulio Parigi (1571-1635) in the years 1599-1600. See here for more information.
Many don’t believe steady share price growth can be sustainable over the long term. I guess you would have had to seen it to believe it, as I have. It’s a very simple concept. You borrow against future earnings or you husband past earnings to tide you over during lean times. It’s a stabilization fund. When times are lean you make a market in your own shares. When times are over-exuberant you dump shares to maintain moderate growth.

Steady share prices require a trusted third party. The above concept often falls apart during generational shifts in management. The new generation doesn’t appreciate the value of steady share prices and questions the productivity of money placed into the stabilization fund. “We haven’t seen that kind of price drop in over a decade!” A trusted third party, outside the reach of creditors, tax authorities, and future generations of ‘smart’ managers, makes a market in our shares using our money. This trusted third party ‘believes’ in the mission of the funding agent+.

We rely as well on trusted sources of funding, investors for our derivative investment vehicles+. We tap into these sources when times are lean, to make a market for our perpetual fund+. We pay back these sources when times are better.1

The structure of the public share offering helps in making a market. We ‘oversell’ available shares in any particular open season+ (15-20%) and play the demand curve. In the IPO+ world this is called an overallotment option.2 Our goal is to sell shares at a set target price. Each year’s sales represent a fraction of total shares, so selling +/-15% additional shares during any particular open season does little to affect total share price, which is driven mostly by individual demand. Our excess sales allow us to skim those buyers willing to pay more. We simply buy back our own excess shares from buyers who don’t meet targeted pricing levels.

Market psychology helps. Purchasers of IPOs feel special. They are among the select few invited to bid on the IPO. They look for the quick win: buy and flip. They rely on the larger public exchanges (NASDAQ, NYSE) to amass retail buyers, the underprivileged, who will buy their shares at a premium (which can be a 10-15% profit in 24 hours). Corporate IPOs are mostly (60%) sold within the first 24 hours, due to this blue chip buying frenzy. The remaining 40% are peddled during the next 30 days by investment sales brokers.

We cannot directly borrow the IPO tricks-of-the-trade. We do not have the ‘select few’ who can buy and flip shares in our perpetual fund. We’re the only buyer. But we can set up a narrow targeted price range. Shares offered at the beginning of a 30-day open season are priced at the low end of the range. Early buyers then see a steady increase in their share prices during the 30-day period (1-2%) as our price support structures kick in and push prices toward the high end of the range by month end.

Summary

Perpetual fund share pricing must track with the value of the underlying investments, as independently assessed. The only way to achieve above-market returns on our share prices is to achieve above-market productivity on our investments. If the underlying assets+ justify a higher share price for the perpetual fund, then we are more than justified in our market making activities to do what it takes to obtain that pricing.

Conversely we will intervene by dumping shares to depress over-exuberance in buyers. Steady share prices are the foundation for steady fund availability over the long term (our objective). Share prices are allowed to grow only to the extent they track with growing value in the underlying investments.

Our objective is to provide predictable funding for unpredictable R&D+. Steady share pricing is the foundation of predictability. We seek long-term investors who don’t like price swings. We control price swings by making a market in the (private) perpetual fund. We control price swings by owning half the sales equation in every buy-sell transaction: investor psychology now only exerts ½ its power of distortion. We gather information about ‘demand’ for our up-coming open season share sales throughout the year. Our test marketing (and pre-selling) is continuous. We collect pledges from reputable institutions throughout the year.3 Steady share pricing over the decades is not a myth, but it does take enormous effort and commitment to the mission.


Editor's Picks for April, 2011

  • 1. We tap into these sources during tough economic conditions even when we don’t need them, to test their reliability and to show we’re good even when times are bad. Investors and bankers will clamor to provide these funds. The perpetual fund represents probably less than 1/3 of total funding. The bulk of funding, and the capitalization of the funding agent, comes from reinvestment of windfalls+. This is a safe investment for traditional investors and bankers.
  • 2. The motivation for the overallotment option (known as the 'Green Shoe') is to provide buying support for shares. If the offering is weak and the price goes down, the underwriter buys back all or part of the extra 15 percent of shares in the market, thereby supporting the stock price. The overallotment option thus provides the underwriter with buying power in the 'after market', enabling him to support the price of the newly traded security. – When the Underwriter is the Market Maker
  • 3. Institutions, seeing a profit with a minimum apparent risk, rushed in to provide [corporate raider take-over] financing. The American Lutheran Church' pension, for example, received a $750,000 commitment fee for agreeing to be a buyer-in-waiting of 10 million dollars of bonds, without putting up any money. These pledges which Milken lined up allowed Drexel [Milken’s company] to provide raiders with a letter stating it was "highly confident" the financing could be arranged. – The Secret World of Mike Milken
Further Reading
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Reba Tull
Offline
Joined: 03/30/2011
Where are the losers?

The reason I do so well in my investing is I work harder at my research before placing my money. If there are no losers then how am I, the smart investor, going to reap the obscene winnings I get by soaking those losers? In every investment there is a buyer and a seller and I want to be on the winning side of that transaction each and every time.

It looks instead like you're setting up a benevolence society. Obscene profits make for obscene levels of effort, and you seem to have removed that incentive. Investing is a highly uncertain activity and you need the promise of exceptional profits to get your salesforce to move as many new shares as you intend in each open season+. You hint at this with your discussion of blue chip investors, and then you take it away (1-2% doesn't cut it when you're only doing one open season a year).