Burying Your Company's Stock

You must bury the shares of your public company to reduce its float. The lower your public company's float, the lower your investor relations cost. [See my article The Proper Use of Shares.] continued The buried shares will be deducted from the float, and the remaining amount is the effective float. You want to get the effective float as close to zero as possible. You don't need to find buyers if your effective float is 0. There are no shareholders who want to sell their shares in your company. It is obvious that this is the best situation. I suggest that if you want your public company to succeed in all aspects, you may want to structure your company's float like this.

Speculators, Not Investors


American stock buyers, on the whole, are speculators, not investors [http://www.iht.com/articles/529443.htm]. Stocks are bought with the intention of selling them quickly at a profit. Even the U.S. government realizes that speculating does not lead to economic growth. Stock buyers who are willing to hold on to their shares for a minimum of one year pay less tax than those who trade in the Market quickly and sell their stocks. Tax incentives from the American government have not changed the speculative nature in the U.S. Market because long-term investors continue to lose money. I've often wondered why these long-term investors continue to buy and hold shares in such a manner?


Avoiding Your Shares Being On The Market


My over 20 years involvement in North American stock markets have proven to me that Market professionals make more money selling stocks short (betting that the price of the shares will go down and the company will go bankrupt) than they do by buying shares. The textbooks only list one of over two dozen of ways that professionals use to sell short stocks. I have written an article on shorting shares that includes 24 ways. The only effective defense to short selling is to ensure that the Depository Trust Company (DTC) in New York doesn't have any of your company's shares in their possession.


When most people buy shares, they leave them "in street name" rather than taking possession of the share certificates. In street name, they are simply turned over to DTC. Short sellers "borrow" or otherwise rely on the existence of street stock to sell nonexistent shares into the company's market. Public short sellers expect to pay the "borrowed" shares back at the much lower cost when the stock collapses. Professional short sellers never expect to buyback the nonexistent shares and legally avoid U.S. taxes on their profits in doing so. If the shares are not there to be borrowed, your company can't be sold short.


If your company can keep your shares away from the DTC, by having all your shareholders demand physical delivery of their share certificates, your company is said to have a Cash Market in its stock. Few companies bother or understand the dangers they run from short sellers. Brokerage firms and DTC try to make it as difficult as possible to create Cash Markets in any stock.


Insider shares are buried


The insiders must "bury" their share certificates. All insiders must agree to a Pooling & Vaulting Agreement. All the insider share certificates, by far the largest percentage of stock in your company, are placed in a bank safe deposit box or other repository. To open the safe deposit box, at least two insiders designated by your company must be present. The result is these shares can't be sold and, since they aren't held by the DTC, short sellers can't use them. You must add your newly issued shares or shares acquired with your existing shares to your safe deposit or other repository when you acquire them. This policy ensures that your float can't increase. No one can use these shares to short sell your stock. This gives you total control over your stock, something that very few companies achieve.


Keep Your Float Private


Stopping the American public shareholders from selling their shares (the float) in your public company is more difficult. It is possible, I think. You must eliminate the potential loss for your shareholders. You have to pay them for their shares. You must also educate them on the fact that they will make the most money when insiders decide to sell their shares during a company merger or sale. They're more likely to agree to the plan if they know the insiders are not selling.


Your public shareholders can avoid loss by selling half of their position when the public company's share price doubles over what they paid for their shares. The shareholder has his risk capital returned and now has a cost-free investment in your public company. The shareholder can now use his original risk capital for another investment. If the initial buyers of a stock do it, you have reduced the float by 50% and the Effective Float is half of the float. If the second group follows this practice, then the Effective Float will be 25% of the total float. Your company's Investor Relations costs have been reduced by 75%. Those funds are, instead, available for further company expansion.