Yes, Del Monte is trading at $60.76 a share. But what are we really getting when we purchase that share? Let’s take a look.
[WARNING: Satire might follow]
Thanks to Federal labeling laws corporations now have to display the actual net price per share (dollar amount of all the contents of the share) rather than the gross price (the share’s net dollar value plus the brokerage fee). Before labeling regulations were changed in the 1970’s, the per share price of stocks were listed in gross prices which made the stocks appear to be worth more than they actually were. That policy change was a clear win for equities consumers but unfortunately, there’s more to the story.
For example, that net price of $60.76 for Del Monte includes all of the dollar value of the share but what all goes into those dollars? The answers might surprise you.
Consumer Resports recently did an investigation of 68 common shares. Here’s what they found:
[QUOTE=Consumer Resports]
Have you ever opened a corporate stock and found it had a lot less value than was advertised? We have, too, and we decided to investigate.
What we did: Our engineers opened 68 shares of different companies that are part of the Dow Jones Thirty and carefully sorted and divided the contents. Then we counted the amount of actual U.S. Dollars in each share. Across all corporations and types of stocks, the shares contained an average of just 57 percent of the listing’s claimed value in net dollar notes.
The rest was Monopoly Money.
When we asked a few corporations why we found so much Monopoly Money, representatives tended to apologize without answering. “That doesn’t sound right. It should be about three-fourths greenbacks and only one-fourth Funny Money,” said a rep from JPMorgan Chase who defended the watering-down as “necessary.”
“The Monopoly bills are in there because they are so bright and colorful that by comparison, the drab and lifeless U.S. currency looks very staid and serious. This increases the confidence of the investors who own the shares, thus increasing the value of their shares as well as U.S. trading markets overall.”
“It’s similar to the way food processing companies add so much water to their cans of vegetables and fruits,” he said. “It’s a win-win.”
A rep from Procter & Gamble said that all of that company’s common stock, including Classes A, B, and C, should be about 80 percent U.S Dollars and 20 percent Monopoly Dollars when separated carefully. But the shares we opened had 54 percent legal tender and 46 percent play money.
What the rules say: Net Value means not the actual amount of Dollars; it means the Dollars plus the Monopoly Money, although this remains confusing to many stockholders.
Requirements for the real-to-fake cash ratio are arcane, but as an example, the SEC requires common class C stocks to contain at least 51 percent U.S. Dollars, (amounting to about 74 percent of the share by volume because actual dollar bills are larger than Monopoly bills) leaving 20 percent play money. The remainder of the share is left empty to facilitate transactions.
Preferred stock must have an average of 56 to 66 percent in actual money of the labeled value, depending on transaction size.
Bottom line: You’re not imagining there’s plenty of Monopoly Money in some NYSE and NASDAQ stocks. But the amounts we found are legal, and corporate representatives say it’s hard to fill the shares much more.
[/QUOTE]
[Satire all done]
(with thanks to the story linked to in dglevy’s post: