A large cause of Google’s spectacular rise has been the very small trading float. Very little of the firm’s float actually trades — of the 273.42 million shares outstanding, only 22.5 million shares were issued to the public in the IPO. 4.6 million and 39.1 million have since "unlocked," allowing insiders a window to sell their shares.
And why not? Early investors own the stock much cheaper. Kleiner Perkins recieved a billion dollar windfall when they sold their shares purchased at (brace yourself) 49 cents each.
The WSJ created a terrific chart showing all the subsequent unlockings over the next year. As this supply hit the market, one would expect it to satiate some (or even all) of the demand for Google shares. (Do the math as to what happens after next).
Click for larger graphic
Graphic courtesy WSJ
Some common sense might be getting trampled in all the teeth gnashing about Google insiders dumping shares: Larry Page and Sergey Brin own about 33 percent Google class B common stock (along with CEO Eric Schmidt). Their recent sales will account for less than 20% of their holdings, and free up over $1 Billion each.
Anytime an individual has the opportunity to put aside a billion in cash — and still own a commanding percentage of their company — its a no-brainer. Bank the money, and there really isn’t anything you cannot do (Fund your own philanthropic organization, own an MLB/NFL/NBA team, collect anything you want, fund your own VC firm).
This isn’t a matter of greed, as some have insinuated — its simply smart diversification.
Sources:
Unlocking Google
Wall Street Journal Interactive Online
November 17, 2004
http://online.wsj.com/documents/info-googstck04-frame.html
Google insiders selling shares
Founders Page, Brin to sell 7.2 million shares each
Bambi Francisco
CBS.MarketWatch.com, 7:51 PM ET Nov. 19, 2004
http://cbs.marketwatch.com/news/story.asp?dist=¶m=archive&siteid=mktw&guid=%7B63DABD36%2DA3B3%2D4BD9%2D820C%2D8311CDEF8CB9%7D&garden=&minisite=
FYI I had trouble with your marketwatch link.
If there is “teeth knashing” it is further proof of irrationality driving stock markets. The wonderful thing about stocks is that they distribute ownership of productive enterprises to the people, from this perspective the lower the better.
I think people were also outraged when in the midst of the stock boom Bill Gates said Microsoft was too expensive. It was sound advice, the kind of “information” the market supposedly is eager to assimilate.
But it goes against people who want some fetish item unrelated to real world values which climbs to the sky with them in a golden chariot, our new gods who “deserve” to be rich, but hypocritically wax indignant at the “greed” of those who would interfere.
These people frighten me. We have created a mass notion that the duty of CEOs is to raise stock values. This is putting the cart before the horse. The purpose of executives is to create good comanies successfully selling good products, stock prices will follow. While companies which are drained and have their books distorted to create short term gains are engaged in long term risks.
But this reality is being set aside for a game. One that threatens peoples retirements and the economic vitality of this nation. This all too frequently is the meaning of “investment.”
The only good side is that as you weaken the capacities of the large organizations the little ones have better odds of prospering.