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Railways of England and Wales» Forums » Variants

Subject: Ideas on Mitigating the "Do Nothing" Strategy rss

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Rick Vinyard
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In essence, the "do nothing" strategy is based on a strategy of repeatedly buying a share of stock in a company and using the provided capital to pay dividends rather than support operations such as building track.

When I first read the mechanic it struck me as a bit odd that share prices would be tied to dividends and not revenues. It feels like a thematic mismatch (much like the mechanic in 1830 that causes a share price drop when shares are sold).

From a thematic standpoint share prices should rise on income (inflow of capital) and fall on dividend payouts (outflow of capital).

As the rules stand share prices are adjusted as follows:
- Dividend (DIV) = 0; Share price (SP) - 2
- DIV at least 1 but less or equal to 1/2 SP; SP - 1
- DIV more than 1/2 SP but less than SP; SP + 0
- DIV = SP; SP + 1
- DIV more than SP; SP + DIV/SP rounded down

It would seem that the problem of the "do nothing" strategy could be mitigated by adding two more rules effecting share price but tied to income rather than dividends:
- Income (INC) = 0; SP - 2
- Income per share (IPS) less or equal to 1/4 SP; SP - 1

Thus, a company with no income would require a dividend equal to three times the share price to stay even.

This still doesn't resolve the initial thematic mismatch... share price rising on income and dropping on dividends, but it should help mitigate the benefits of the "do nothing" strategy without overcomplicating things.

Another set of rules could be added to additionally reward companies that produce income but mostly withhold dividends:
- IPS greater than 1/4 SP but less than 1/2 SP; SP + 0
- IPS greater than 1/2 SP but less than SP; SP + 1
- IPS = SP or more; SP + 2

This would allow a company that is earning a large amount of income to declare no dividend and hold steady or declare a small dividend and actually increase slightly.
 
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I don't see your point about a thematic mismatch - shares which pay good dividends are a good investment because they are a good source of long term income, and so they are in demand and their price goes up.

Although maybe there is a historical change in attitude to shares. These days people think about buying shares in the hope of selling them for a quick profit if they go up based on the actions of other speculators, with very little interest in the dividend income.

I'm wondering if in the past people bought shares as longer term investments based on the dividend they expected to earn rather than changes in the share price?
 
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Bruce Murphy
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rvinyard wrote:

When I first read the mechanic it struck me as a bit odd that share prices would be tied to dividends and not revenues. It feels like a thematic mismatch (much like the mechanic in 1830 that causes a share price drop when shares are sold).

Pardon? That seems entirely consistent with how a market works. Selling causes the price to fall (but down, not to the left, the same direction that is automatically recovered if the shares hit full ownership)

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Bruce Murphy
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Kevin C wrote:
I'm wondering if in the past people bought shares as longer term investments based on the dividend they expected to earn rather than changes in the share price?

I'm fairly sure that is the case. There are various period literary references to owning shares worth $amount a year.

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Rick Vinyard
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Kevin C wrote:
I don't see your point about a thematic mismatch - shares which pay good dividends are a good investment because they are a good source of long term income, and so they are in demand and their price goes up.


Stocks that pay good dividends are not necessarily a good investment. The dividend is a mechanism for a company to transfer accumulated wealth to the shareholders.

But, a company that consistently has losses year after year with no hope of future profits will drop in value no matter how good the dividend.

Kevin C wrote:
Although maybe there is a historical change in attitude to shares. These days people think about buying shares in the hope of selling them for a quick profit if they go up based on the actions of other speculators, with very little interest in the dividend income.

I'm wondering if in the past people bought shares as longer term investments based on the dividend they expected to earn rather than changes in the share price?


You are right that many people invest in companies for the dividend stream, but it is not purely the dividend stream they are investing in. It is the expectation that the company will remain profitable enough to continue the dividend stream.

Without profit a company cannot pay large dividends indefinitely.

Profit (or expectations of profit) is the major driver behind share price changes.
 
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Rick Vinyard
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Another simple solution would be to limit dividends to a fixed multiple of income that turn... say income x 3.

That still allows the controller some leeway to control the share value while at the same time penalizing companies that don't generate revenue.
 
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Andrew
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rvinyard wrote:
In essence, the "do nothing" strategy is based on a strategy of repeatedly buying a share of stock in a company and using the provided capital to pay dividends rather than support operations such as building track.


This is not a strategy I have seen used in any of the (admittedly few) games I have played, but it's made for interesting reading. Whilst the idea of linking share changes to company performance (ie. income) appeals to me personnally, I mostly play with my family, and they dislike convoluted mathematics in any game. We all feel that revaluing shares is the most cumbersome and uninteresting part of this game.

My understanding of the concept is this:
> Player buys share for X
> Company pays out X as dividend, share price goes to X+1
> Repeat

Isn't the simplest solution then to make a minor change to the rules:
DIV 0 : - 2
DIV 1 to 1/2 SP : - 1
DIV more than 1/2 to SP : + 0
DIV more than SP : + DIV/SP rounded down

Thus, the share price only rises if the company pays a dividend greater than the value of it's share. A player simply buying a share and taking the dividend back isn't going to make any ground for themselves or their company.
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