The End Of The BBE Story

WALL STREET SMARTS, THE BLOG, IS NOW WALL STREET SMARTS, THE BOOK.  FULLY EDITED AND REVISED WITH NEW MATERIAL ON AMAZON

During the lock up period, our shareholders waited anxiously to be able to sell some of their shares.  As Matt from USA Investment Company (USA) had predicted, the price of BBE's stock dropped a few points in the early days of trading after the IPO.  A point is stock market jargon for a $1 swing in the price of a stock (up or down).  USA is a broker-dealer and kept 200,000 shares of BBE stock in its inventory.  In other words, it had not actually sold all 1,000,000 of the shares of stock it had purchased from BBE in the IPO.  It traded shares for its own account in order to keep the price of the stock in a relatively close range of the initial price of $35 per share.  By doing this, USA was providing liquidity for the shares in the market.  It would buy and sell the shares in an effort to make sure that the shares could be freely and easily bought and sold on the NASDAQ in its early days as a public company.  This insured that the IPO would be viewed as a success in the market.  No investment banker wants a new stock it has underwritten to quickly drop in price after it opens for trading. 

After the lock up period, many shareholders wanted to sell some of their stock.  A sale of shares in a new public company by the original shareholders through an investment banker is called a secondary offering.  The goal is to allow shareholders to sell their shares at a pace and in amounts which will not unduly drive the stock price down.  Selling in this manner helps avoid a severe price drop from a flood of shares hitting the market at the same time.  Our investment bankers at USA arrange for sales of stock by our shareholders over time.  Market professionals anticipate this sort of sale, and the price adjusts accordingly as shares hit the market.

A large number of shares held by shareholders which could be sold is called overhang.   Like the price of anything for sale, stock prices are subject to the law of supply and demand.  If a large block of stock comes onto the market all at once, the price of the shares will drop quickly.  If a stock is scarce and shareholders are not in the mood to sell, the supply is small.  Someone who wants to buy shares must pay a higher price to get them.

When I organized BBE with the five other original shareholders, I purchased 100 shares for $1,000.  Over the years, my 100 shares grew to 150,000 shares through stock splits and stock dividends.  Those shares are now worth $5,250,000 at the IPO price of $35 per share.  When I was young and struggling with what to do with my life, my Father told me, "Do what you love, and the money will follow."   How right he was!  When he gave me that advice, the use of computers by individuals was in its infancy.  The Internet was a game changer, and I found my career as a blogger.  I have spent most of my adult life at BBE doing what I loved.  And so, I will close the story of BBE with the tried and true literary conclusion: "and everyone lived happily ever after."

The purpose of this story has been to introduce you to various financial and investment terms you will meet in your investing career.  Hopefully, learning these terms through the story of BBE has not been overly tedious.

Comments are always welcome.