Stocks have a stork that delivers them to the world. While there are many storks who serve in the IBSSF (Investment Bank Stock Stork Force), some of the most known stock storks are Morgan Stork, Merrill Stork and Goldman Stork. I mean, these are some of the best of the best; the cream of the crop. They graduated top of their class at the academy, and they are legends in the IBSSF.
Morgan, Merrill and Goldman are all investment-bank-storks who help bring stocks into this world.
Ok, you must be confused by that opening; I think I blacked out for a second. So, let’s give you an example of how one legendary investment-bank-stork helped the stock of Facebook be born into this world.
Back in 2012 Morgan Stork, whose real legal name happens to be, Morgan Stanley, was the stork that helped bring the publicly traded stock of Facebook into the world. Morgan Stanley is what is referred to as the underwriter of Facebook’s stock.
Ok, so if I haven’t confused you yet, you are way smarter than I am; let’s see if you follow this gem.
When a stock is born, it is for a purpose. That purpose is to raise capital for a company. Most people think the company retains ownership after it issues its stock; it doesn’t. The stock is literally sold to the public and the company no longer owns that stock sold to the public. This is one of the reasons why you want the employees who work in the upper management of the company to also hold stock; if they try and screw the company, they, in turn, screw themselves since they also own large amounts of the company’s stock. Obviously this doesn’t change the basic human nature of stupidity which we have seen way too often in business, but it’s the best system we have so far, by far.
Let me give you an example using Facebook since I know you are basically cross-eyed if you have made it this far.
Before May 18th, 2012 Facebook was a private company. The public could not purchase it’s stock on a stock exchange and invest in the company. Morgan Stanley was the company that helped make it possible for there to be stock in Facebook which the public was able to purchase.
Now, let’s name Facebook’s mother, Markita. When Markita is in labor, and gives birth to the stock of Facebook, this process is called an initial public offering, also referred to as an IPO. I am trying to change society by referring to this process as “having a stock baby” instead of “having an IPO“, but it’s not working; and I digress. So Markita is having an IPO stock baby thing, meaning Facebook is now offering its stock to the public.
On May 18th, 2012, Facebook sold 421,233,615 shares for a price of $38 per share. The amount of capital raised by the IPO was around $16 billion. Mark Zuckerberg owned 22% of the shares (and even more voting shares) and as the CEO of the company, has all the incentive in the world to keep Facebook profitable, since he owns so much of the company. And the company raised $16 billion to use to expand its business.
So, to make it simple, the stock of Facebook was born in order to raise $16 billion for the company. This $16 billion was raised in order to use towards increasing Facebook’s profitability. Since management owns a lot of stock, they have incentive to make the company as profitable as possible via the $16 billion raised by the offering.
Oh, and we also learned that we need to stop referring to it as “having an IPO” and start referring to it as “having a stock baby” !