Warren Buffett is not gospel. He is folksy wisdom and he has more of it than you and I put together from his emersion in financial history and experiences.
If a company has 10 shares of stock and you bought them at 10 then you have 100 bucks into the company. Now management comes along and gives themselves 1% a year for 20 years (lets just use 1% of the original 10 shares for ease of illustration
They give themselves a stike price of 20 and the stock goes to 50 at the end of 20 years.
At the end of 20 years there are 12 shares. So you made 10 X 40 = 400 bucks on your investment. Management makes 2 X 30 = 60 bucks on their FREE OPTIONS.
But there is more to the story. Now you are only getting 5/6 of the company's profits because managment has given themselves 1/6 of the company through their stock option plan and pretty soon they will vote for another larger and better stock option plan for themselves through their buddies on the compensation committee (who believe it or not get stock options to serve also and are taking more and more of your company away from you - this is basically what i think happened at Parlux and many other companies).
There is more to the story - now management has all these options and they aren't worth anything unless earnings go up. Management decides to cut back on capex to increase earnings so they can get more for their options when they are converted to stock and sold. The companies assets begin to decay because managment wants the stock to go up. You don't know any better because you are a stupid shareholder.
Then the best part - once the stock pops on great earnings (manufactured by management by not reinvesting in the company to prevent assets from decaying and aggressive accounting) management takes the cash sitting in the till and jacks the stock up even more by buying back stock to make it go even higher while management cashes out and buys their retirement home in cost rico
that is basically how it works and why options should not be given to anyone at the company you invest in (except for small awards to employees)
its called moral hazard and i have made alot of money from it
k isn't that great a stock there are much better companies
It's a lot more than double how about 5 TIMES more!
to the tune of 3 mil shares and they normally don't sell 500k
The problem here is that mgmt never buys shares...it's all given. When was there an open market buy? I guarantee you that K has an ongoing share repurchase program. But of course...in this way the foundation can keep selling shares are a nice price and the stock ever sooooo slowly rises. They sell the shares and then the company actually buys back the same amount of shares. But then guess what! With the dividends the foundation gets MORE shares as they probably get stock instead of the cash dividend. All a vicious cycle.
Put your money in another growth vehicle that will rise quicker.
Management in K has been giving themselves huge amounts of stock options.
Even if the company is buying back shares the foundation and managment are the real winners and the new shareholders are the losers.
The upside is diluted by the options given to management more so in K than many other companies that I invest in.
Warren Buffett doesn't dilute his shareholders in BRK for a good reason and that is why they stick with him. K is just for trading like alot of other stocks where management gives themselves huge amounts of options in their compensation packages.
I would be for voting stock options out of existence. If you want to trade stock options then let management buy them with their CASH bonuses and not be given them to dilute the common shareholder's interest.
It is hard enough for the little guy to make money as it is so why make it harder by giving management such a large advantage over the small shareholders.
Corporate governance is almost nonexistant as I see it. The mutual funds that have your shares are not doing you any favors. Sell your mutual funds and invest your money directly so you can vote against all these stupid compensation plans. That is the smart thing to do because the mutual funds are not doing it for you. They vote for whatever managment wants so they can get the heads up when things go south.