New material on splits and buyback; other edits #101
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@RacheltheEditor Thanks for the additions. Some notes on these FYI. No need to adjust as I'll handle them as I integrate but thought I'd share my feedback.
| compensation. | ||
| This requires starting with the basics of how companies and stock work in the United | ||
| States. Some of this is likely to be surprising, but if it seems old hat you can | ||
| [jump ahead](#equity-compensation-basics) to compensation. |
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Not sure it's "likely" to be surprising in this case. Might soften this a bit.
| - We’ll discuss more details on IPO and | ||
| [what this all means for your equity](#what-is-equity-worth?) later on! | ||
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| 🚧 Josh, we can move this material to the defining occurrence of IPO (now lives in What is |
| - In a [**stock split**](https://www.investopedia.com/terms/s/stocksplit.asp), for example, a | ||
| company’s board of directors decides to increase the number of outstanding shares by | ||
| doubling or tripling the number of shares each stockholder has. | ||
| Stock splits are a way to increase the liquidity of a company’s stock when the stock price |
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This doesn't seem clear enough. I think we may need to reference the details of why this is might be helpful. At face value, it's not clear how a stock can be "too high for average buyers."
https://www.investopedia.com/terms/s/stocksplit.asp
https://www.investopedia.com/articles/01/072501.asp
Also reverse stock splits not mentioned.
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(As in, most readers would wonder, "can't you just buy fewer shares if the price is high?")
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Hm. Let's add that "can't you just buy fewer shares" to questions for Eric.
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I think we have the info and can write and then get it reviewed. The actual reasons are covered in those Investopedia links—it has to do with board lots, bid-ask spread, and psychological factors. I don't think we need it covered in detail though, but just summarized precisely.
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Basically, the at face value the concept makes little sense, but it's all these more subtle considerations.
README.md
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| ### What is equity? | ||
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| 🚧 Structure: Intro on how equity is broader than just stock. | ||
| As we discussed in the introduction to this Guide, equity is about more than just holding stock. It's a calculation of the value of ownership in a company, and its purpose is to align the interests of stockholders (in the case of equity compensation, the employees) with the financial and philosophical goals of a company. In many ways, equity is about risk: rising waters will lift all boats, but you can also go down with the ship. |
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I think the phrase "equity is about risk" is a little fuzzy. Might rewrite.
Equity is about alignment through shared ownership. Risk is a bigger discussion, perhaps for a new paragraph or subsection. There is risk to owning equity, but that is not what it is "about". A related point is, if you have higher risk tolerance, you may prefer greater equity over cash.
Style nit: Need inline internal link if we reference an earlier section.
README.md
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| 🄳 Informally, we say you have **equity** in a company when you have some kind of ownership | ||
| or likely future ownership. | ||
| In practice, this can mean, restricted stock, stock options, and RSUs, which we’ll be | ||
| discussing at length. | ||
| In order to encourage employee ownership, companies might offer employees restricted stock, different types of stock options, and RSUs (restricted stock units) as part of their compensation package. To a certain degree, employees who have equity in the form of these stocks or units have power over how, when, and whether they want to become part owners in their company. We'll be |
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Not sure about this change, in particular the 2nd sentence, due to a few nits:
- Options are neither stocks nor units, but options.
- Having equity doesn't means you have a sort of possible or approximate ownership, but not sure it's precise to say it means you have power over how, when, and whether (if it's restricted stock you already are an owner, but subject to restrictions)
- "To a certain degree" seems avoidably vague.
| That doesn’t mean that only NYSE can trade that company’s stock! | ||
| They do not own the stock, they just hold the listing. | ||
| Each exchange acts sort of like a high-stakes bar for buyers to meet potential stocks. | ||
| - Presence in a meetingplace is one of the |
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meetingplace -> exchange (meetingplace feels odd here)
| The transition from private to public (called an initial public offering, or IPO, which | ||
| we’ll get into later) is what gives real monetary value to partial ownership in the form | ||
| of equity. | ||
| - Hear the words "[stock exchange](https://en.wikipedia.org/wiki/Stock_exchange#Other_types_of_exchanges)“ |
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Why the link to this subsection?
| and you might think of blue-suited men shouting and pointing in a marble pit in Gotham. | ||
| This isn’t that far off, but increasingly stocks (and other tradable entities like bonds | ||
| and securities) are traded globally in a digital marketplace. | ||
| There are multiple individual "exchanges” where stocks are bought and sold by traders, |
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Broken quote. Actually do we need quotes? Should we just define?
jlevy
changed the title
@RacheltheEditor I believe I've restored all these and want to go through them shortly, as a separate PR onto my branch.