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Subject: Impact of short sales on company share limits rss

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Bien HBB
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Since short sales put additional shares into the bank pool, is it then possible to own as much as 90% of a company? A ten-share company could have 5 additional shares created from the short sales. This would allow a player to hold 9 shares of that company (60% of 15). Am I correct in this thinking?
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Burster of Bubbles, Destroyer of Dreams.
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No, the 60% limit still applies.

There are other implications, though:

50% of a 10-share company is not a secure presidency, as someone else could acquire 60%.

It is possible to have 60% in the president's hands and 140% in the company treasury. A full-pay under those conditions would be VERY profitable!

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Bien HBB
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Got it. Thanks. So it is 60% of a company and not 60% of outstanding shares.
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Gerit Driessen
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Right, so you may have 60% of the number of shares that the company consists of, or issued itself. So 3 shares of a 5-share company, and 6 shares of a 10-share company. The shares created by way of shorting are not real shares, like those issued by the company, correct?

You should indeed own 60% to be safe.

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It is possible to have 60% in the president's hands and 140% in the company treasury. A full-pay under those conditions would be VERY profitable!


Could you elaborate on this? Don't understand... You mean, I think, that the shorter must pay dividend to the company. That would be profitable for the president because his company gets paid by the shorter. But 60+140=200%. That would not be possible if you keep the rule that only 5 shares may be shorted...

Owning more than 100% is a strange concept anyways .
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J C Lawrence
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Gerit wrote:
Right, so you may have 60% of the number of shares that the company consists of, or issued itself.


Distinguishing which shares the company issued and which were created by shorts is distracting and irrelevant.

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The shares created by way of shorting are not real shares, like those issued by the company, correct?


No, they are not only real, they are indistinguishable from any other shares.

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It is possible to have 60% in the president's hands and 140% in the company treasury. A full-pay under those conditions would be VERY profitable!


Could you elaborate on this? Don't understand... You mean, I think, that the shorter must pay dividend to the company. That would be profitable for the president because his company gets paid by the shorter.


I have a 5 share company which I control with just the 40% presidency. Nobody else owns any shares of that company. You short the company 5 times. My company issues sufficient loan to buy all 5 shares created by the short from the Open Market. At the end of this transaction it has 8 shares in its treasury, representing 160% of the company. I hold the remaining 40%.

Now do the same thing with a 10 share company and my controlling the company with just the presidency -- now the company has 180% of the company in shares in its treasury and I hold a mere 20%.

Quote:
But 60+140=200%. That would not be possible if you keep the rule that only 5 shares may be shorted...


Many people play that all 10 shares of a company may be shorted (matching the original rules of the game). The game as published by DTG has an option of 10 shorts instead of 5 per company, and so far the report is that every single copy of the game sold to date have taken the 10 short option.

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Owning more than 100% is a strange concept anyways :p.


No more than most any derivative.
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Burster of Bubbles, Destroyer of Dreams.
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5-share company X has good tokens but terrible trains. The president, player A, owns 60%, and 40% are in the company.

Player B wants money to start a new company, and shorts 5 shares of company X, figuring that the dividends and appreciation won't be too much of a price to pay.

Player A then has company X buy all 5 20% shares created by the shorts, possibly taking loans to do so. Now the distribution is:

Player A: 60%
Company treasury: 140%
Player B: -100%
====================
Sum: 100%

In the first OR company X pays a moderate dividend, pays full, and pays off a loan or two. Player B covers the shortfall without too much pain.

Player A then has company X buy all the good trains out of their other company, company Y. Maybe company Y gets liquidated, even.

In the second OR company X pays a massive dividend, pays full, pays off a few more loans. Player B barely covers the dividend and starts looking nervous.

In the next stock round those X shares look amazingly good even at the higher stock price. The shares sell quickly; player B only manages to cover 2 of their shorts, and then has to go through the next pair of operating rounds paying dividends and losing appreciation on 3 shorts...

(There's an example in the rulebook where company X is put up for friendly sale, bankrupting player B on the spot, but I haven't seen anything quite so egregious in any of our games. The disastrous shorts, yeah, I've seen that...)
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Eric Brosius
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Gerit wrote:
But 60+140=200%. That would not be possible if you keep the rule that only 5 shares may be shorted...

Owning more than 100% is a strange concept anyways .


Remember that 5 shares is 100% of a 5-share company. With the current rules, it is not possible with a 10-share company (it used to be possible) but it is with a 5-share company.
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Eric Brosius
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Morganza wrote:
I haven't seen anything quite so egregious in any of our games.


I haven't either, but it's a possibility. I think in this game you always need to be looking for egregious---the egregiously profitable short, or the egregiously successful punishment of a short.

One person compared shorting in this game to whacking the target with a giant mallet---except sometimes the target is made of india-rubber so that the mallet bounces back and hits the person wielding it square in the face.
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Gerit Driessen
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Player A then has company X buy all 5 20% shares created by the shorts, possibly taking loans to do so.


I read before that it is a good thing if you let the shorted company buy up the new shares; but why is it a good thing? I forget.

JC, I did not mean I want to track the shares the company issued and the short shares (they are indeed indisguishable). Just a way to remember how many certificates you may have.

The not being real of shares: it is a bit strange isn't it - a 5-share company creates, well, 5 shares and suddenly there are 10! Of course someone has -5 shares but still. In the real world there would not be a single extra share printed. This is not to critisize the game, because it has to abstract certain realities. It just shows I'm still having trouble really get to grips with shorting shares.

So thanks all for clearifying!!
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J C Lawrence
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Gerit wrote:
I read before that it is a good thing if you let the shorted company buy up the new shares; but why is it a good thing? I forget.


Because the buying company will receive the dividends for those shares into its treasury, and will have all those shares available for sale from its treasury at the new higher stock price in the next SR.

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In the real world there would not be a single extra share printed.


Shares haven't been printed for decades. A share is also (in the Real World) not a fixed fraction of a company. As the many of us working for startups well know, while our current shares (or options) may each represent 0.001% of the company, when the company raises more venture capital, it will do so with an "up sell", issuing more shares and diluting the fractional percentage of our shares as it exchanges equity in the company for capital.

What's missing in 1817 is a derivatives market that, for instance, would allow a president to hold shares of a company and to then buy derivatives that bet against the future of the company (in much the same way as shorts do).

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It just shows I'm still having trouble really get to grips with shorting shares.


I suggest reading up on how shorts and the futures market work in reality.
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Burster of Bubbles, Destroyer of Dreams.
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Gerit wrote:
In the real world there would not be a single extra share printed.


The operators of the Erie Railroad printed and sold shares totaling around 1000% of the company. This is why we now have laws regulating such things.

I often describe 18xx as a simulation of real-world financial dealings that are felonious by today's standards.
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Eric Brosius
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Morganza wrote:
The operators of the Erie Railroad printed and sold shares totaling around 1000% of the company. This is why we now have laws regulating such things.


The movie The Producers deals with similar ideas.
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Glenn Martin
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Eric Brosius wrote:
Morganza wrote:
The operators of the Erie Railroad printed and sold shares totaling around 1000% of the company. This is why we now have laws regulating such things.


The movie The Producers deals with similar ideas.


That's our Hitler!!!
 
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