Legally printing money

I read the book “Rich Dad Poor Dad” when I was as 15. I remember a quote from rich dad:

“There is a way to legally print money, and that is by owning a public ally traded company”

Is this really true? If Steve Bezos didn’t give a rip about share price, could he just issue trillions of shares at $1ea and wait for market makers to scoop them up?

I don’t know who Steve Bezos is, but if Jeff Bezos were to do that, his board of directors would likely be displeased. You can issue trillions of shares if you want, but there’s no guarantee that people will buy them. (It’s also unlikely that any investment bank would underwrite such a ridiculous offering.)

i haven’t read the book, but my assumption is that the author is not being entirely literal.

You don’t know who Steve Bezos is? Steve Elon Bezos?? Dude! Read up!

Assuming that you’re remembering correctly, you’re taking it a bit too literally. It’s common for a very lucrative business to be called “a goldmine”; but that’s not meant literally either.

You might want to read up on microeconomics if you don’t understand why diluting your shares to the tune of one trillion isn’t a good idea.

That is not how stocks work.

A stock is a percentage ownership in the company. In theory the stock represents the value of the company.

So, if you have company worth $100 and issue 100 shares they sell for $1 each (and if you own 10 share you own 10% of the company). If you issue 1,000 shares then each share is worth $0.10 each (so if you own 10 shares of this you own 1% of the company).

It gets more complicated than that but that is the basics. You can see that issuing a trillion shares doesn’t help you at all. You still only have $100 but it is divided up into a trillion shares which is not much use to anyone.

The value of the company’s shares comes from two things: the stream of future dividends, and the distributed assets of the company after it liquidates. The latter is generally only a concern for companies that are acquired, as if a company liquidates its current legal existence and the assets aren’t going to be used productively by someone else, the common shareholder is unlikely to reap much of a reward seeing as the business is most likely bankrupt and unprofitable. So basically, the investors buying stock are doing so because they are expecting dividends that are comparable to what they can get with similar risks in other companies, or because they expect the value of the company in the eyes of acquirers to be at least what they are paying for the stock, and presumably much more. In the end, the way that these two parts of a stock value’s increase is by having prospective earnings. If you have a prospective earnings forecast, you can gauge how the value of the company and any dividends that they payout are likely to change in the future. If you forecast more earnings that the market as a whole, then you buy.

In general, a company has some use for more money, but not infinite uses for it. If a company needs more money to grow its business, it’s not going to be paying dividends, and may even issue more stock that dilutes the current holder’s percentage of ownership in the company but presumably will allow the company to increase their earnings per share, which as you will note will be harder because there are more shares out there now. So in theory, when one issues stock, the earnings per share decreases until the money can be invested, and this will depress the stock price. If you continue to issue stock without actually increasing the earnings capability of the company, the value of the stock, and thus the proceeds you will get from issuing it, will continue to fall.

A privately held company goes public to raise cash (usually). So they are not “printing money,” they are in essence selling the company to anyone who wants to buy some of it. There is nothing magic about that. The cash you raise by selling stock is equivalent to whatever the buyers think your company is worth.

A publicly held company can issue additional shares of stock to raise cash, but that dilutes the value of the stock already out there (this topic can get complicated beyond my ability to explain it).

Steve Bezos famously started the web site Nile.com where you could buy virtually anything for the most expensive price on the Internet. In the first year he had revenues of $198.67, representing a single sale of a watch battery for $100 plus S&H charges of $89.67. He sold the battery to a customer in Japan who thought the price was in yen. The customer is still trying to return the battery for a refund. Steve Bezos did in fact release an IPO with a trillion shares at $1 each and sold two shares, one to each of his parents. The stock was delisted the following week when the price dropped to $0.02. Steve is now making money by selling email lists to spammers.

As usual, Rich Dad (or was it Poor Dad?) was engaging in a bit of hyperbole. As others point out, a company is only worth what it is really worth - i.e. what most of the people out there who buy shares would think it is worth. Perhaps the main point is that by selling shares, you are doing the same as “borrowing” money, except you pay back in anticipated profits, not fixed payments. So you are getting others to bet you’ll succeed.

And once the shares are issued there’s a real problem with printing more - as others pointed out, a share is exactly that - a share of the company. You need to own 50% of them to make a decision such as “Let’s issue more shares”. (And even the various states and the SEC tend to have laws protecting minority shareholders from being run over by the greedy 51%). Plus, the proceeds of newly minted shares go to the company as extra working capital, not to the CEO. Usually, issuing additional shares is related to some sort of major expansion of the business - “Yeah, there’ll be twice as many shares, but the proceeds from the business will be much bigger with the new factory the proceeds let us build.”

More likely the problem is the opposite - Jobs and Wozniak sold a decent amount of Apple for what would be considered today “cheap” - not to mention Ronald Wayne, who sold his original 10% share of Apple back to them for $800. (thus missing out on having $75 billion in his pocket). When times are tough and things are just getting started, the value a company would be much less than years later when it hits the big time. But, those early days are usually when the shares get sold.

It’s perfectly legal to print your own money. You just can’t print someone else’s money.

The trick is convincing someone to accept your money.

In effect you print your own money every time you write a cheque

Just wait until you find out about his partnership with Warren Gates!