We recently published an article regarding an outburst by National Beverage Corporation CEO Nick Caporella in which he criticised the workings of the stock market, in particular short-term trading. In reality many of the points he made were valid although if company executives are not willing to work within stock market trading parameters then is the stock market really for them?
Working together
What private investors see in public is not always the full picture which can take some time to emerge behind-the-scenes. As stock market regulations ensure that only information which is a cast-iron certainty can be placed into the public domain this does often leave an information vacuum. If analysts, institutional investors and company executives can work closely together then the lifespan of this “information vacuum” can be reduced to a minimum. However, if there are conflicts, friction and incompatibility between these parties then we can be looking at a “false market” – which can last for many days, weeks or even months – where information moving share prices is not available to everyone, insider trading by another name.
Getting information out as soon as possible
The key to running a true market any stock is to get all information out into the public domain as soon as possible. As we touched on above, there are various short-term constraints, while in theory all non-public information should be kept “under lock and key” there are often many parties involved resulting in information leaks. If the chain from the company to analysts down to institutional investors is stretched or broken at any stage this does nobody any good. We can all appreciate that Nick Caporella’s rant was perhaps well meant and in reality truthful but will it help his company in the future?
The good and the bad
One striking matter which emerged from Nick Caporella’s rant was the fact that he was not critical of short-term trading when short-term traders were pushing his company shares higher. Some would argue the shares had pushed too far ahead in the short to medium term and a consolidation was necessary, while others might suggest that they had been pumped up on the back of takeover rumours. Either way, it is difficult to justify a non-critical stance on the way up but a highly critical stance when the shares are not moving in the “right direction”.
So, in theory when floating your company on the stock market you need to take a good with the bad, fully understand stock market procedures and while not necessarily agree with everything, at least be aware of the upside and the downside.
Limited floating shares and company executives
The issue regarding National Beverage Corporation has highlighted another very controversial subject, which is that of restricted share floats. We know there are 46 million National Beverage Corporation shares in issue and we know that Nick Caporella holds 75% of these. So, when you take into account long-term institutional shareholders this does not leave an awful lot of free floating shares. Therefore, short selling over the last few days may well have had a bigger impact than it should have although this works both ways. When the shares were been pushed higher, short-term speculators were buying the stock and long-term investors were forced to “pay up”, where was the criticism?
While many companies operate under a restricted share float structure you do have to ask yourself why?