One advantage about American capitalism, you can experience its machinations in person rather than relying on other people’s opinions. Public corporations are public. They hold regular meetings, somewhat like the company’s version of the State of the Union address. Some will let anyone in. Some prefer to talk to shareholders. Want to get in? Buy a share of stock. With companies like MicroVision, that may only cost you a couple of bucks (plus commissions and fees.) It is the one time of the year when the directors and officers meet the owners (you if you own a share). The official parts may be the prime reason for attending. I find the unofficial parts more valuable and fun.
If you own stock and can attend a meeting, showing up once will introduce you to the people running the company. Show up twice and you’ll get an idea of whether the company is sitting still or moving. Show up three times and if it is dull then that may be a key insight. Show up enough times and become part of a community that also shows up. The officers are more likely to shake your hand. The other shareholders are more likely to share their insights, and do that over a meal, too.
I’ll use MVIS as a model because I attended their meeting today, and because it is the last of my stocks that is still in Washington State. All of my other in-state companies have been bought out, sold off, or moved away. So much for buying local. I also use MVIS because their story is dramatic, even though their stock is dull – for now.
If you need a primer on MVIS, browse my collection of MVIS posts. In general, MicroVision is based on a simple technology; a mirror on a chip. Oscillate the mirror the right way and either bounce light off it to make a display, bounce light off it to hit a sensor, or do both. It may be a simple and innocuous little thing, but count the cameras, displays, and sensors you see every day and realize the potential size of the market. A tiny sliver of an enormous market can make a very profitable company. A bigger slice can make a company that makes headlines.
So, why isn’t MVIS already a headline stock and MicroVision a headline company? Despite stories of overnight successes, starting up a company isn’t easy. Developing disruptive technologies isn’t easy. Convincing enormous companies like Sony to work with companies that aren’t profitable yet is probably more than doubly difficult. It is also difficult for the investors.
MicroVision seems to be living at the whim of its customers. While that’s true for every company, MicroVision’s customers operate in the highly competitive field of consumer electronics. Apple is famously secretive about its product plans. (And, no, I don’t know if there’s a connection.) They aren’t alone. The result is such an array of non-disclosure agreements (NDAs) that the company’s officers and managers can’t or won’t say much. They must announce significant news, but they also must protect their competitive position. Investors are left parsing press releases. Show up at a stockholders meeting and get to parse body language, too.
Some of my notes are posted on various stock discussion boards (Motley Fool, Silicon Investor, Investor Village, reddit). I highly recommend listening to perspectives from other attendees, and from Investor Relations.
This year’s meeting in particular revealed something to me that is more personal and an example of why there’s a value to showing up.
I’m a long-term investor. That’s not stylish, anymore. I invest in companies by buying shares of their stock. I prefer to buy shares in small companies, hold them while the company grows, then sell the shares when they are more valuable and the company is more popular. (Details? I wrote a book about that, Dream. Invest. Live.) I bought my first MVIS shares in 2000. Yes, just before the bubble burst. I also bought more several times at much lower prices. Now that the company is looking more promising than ever (though I’ve said that before) I find myself less optimistic about how it will benefit me. Personal finance is personal, and while a company and stock may succeed, it isn’t necessarily true that the shareholders will succeed.
Dilution. The reason MicroVision is still in business after over twenty years of development is dilution. One way for a company to raise funds is by creating and selling more shares of the company. MicroVision has survived because the people in charge have managed the finances in a variety of ways, including dilution, significant dilution, dilution that has dramatically reduced my potential gain from the stock. As I said in my notes;
“My bad news is that dilution has severely reduced my potential gain from the company. When I first bought MVIS shares, there were only ~ 12M shares outstanding. Now there are ~70M. Between those two was an 8-to-1 reverse split. Divide that first number by 8 and get down to an equivalent of 1.5M. My fractional ownership of the company has reduced with each dilution. Since those first shares in 2000, I’ve invested at least three years of living expenses into MVIS. Currently, they are worth about three months of living expenses. I don’t expect those first shares to ever reclaim their value, and am glad I drove down the cost basis with several purchases since then. If MVIS rises twelve-fold, I’ll recover my investment. I believe that potential exists, but I haven’t updated my analysis.”
I realized that academically before the meeting, but quantitatively after a quick analysis. Most of the dilutions were relatively small. Cumulatively, they result in a 46-fold decrease in power of those first shares. My fractional ownership of the company decreases with each dilution. The estimate for the share price decreases with each dilution. Each step may be small and necessary, but the cumulative effect is enormous. Some will buy more shares and maintain their fractional ownership. Others, like those who get grants and options, are also more likely to keep up. Long term buy and hold of a set number of shares has a diminishing value with each dilution.
I sat there feeling as if “we’d” were close to reaching a goal, but that I’d be left behind. People buying now have a much lower cost basis. The people from the company making the presentations will doubly benefit from their stocks and from the salaries. They have a right to be proud. In the last five years, they’ve raised the market cap of the company five-fold. The stock, however, has barely budged.
There were two videos in the presentation, each of which were in a world I can’t visit. One had a nuclear (but diverse) family living in a smart McMansion where the oven responds to Mom’s arrival (does Dad cook?). The other was a family going out to dinner, something I rarely do because of time, money, and the fact that I like my cooking better. It took a few nudges to get me to accept an invitation to join some of other shareholders for a post-meeting lunch. (Which was a very good thing.)
Attending the meeting made me realize that while the board is “working for you (shareholders)”, they can’t work equally for all of us. Corporations may attempt to increase shareholder value, but that’s typically driven by increasing the value of all of the shares, not by maximizing the benefit to all shareholders. People and institutions with many shares benefit more than people with only one share. There’s a monotonically increasing sliding scale from one extreme to the other.
Despite that personally subdued expectation, owning stock and meeting other stockholders is valuable and fun.
It is fun to watch something grow and develop. Even without being employed by the company, being a part owner engages me far more than just watching it happen from a distance. Being a shareholder in a successful company is far more profitable than being a fan of a successful sports team. People fascinate me. People willing to directly own a stock, to independently invest in a company, impress me with their intellect, analyses, research, and insights. They also tend to have great stories whether that’s about successes and failures, careers, where they live, or what they want to do with their lives. Meeting people after the meeting, sitting around the lunch table, I always feel a little more humble. There are impressive people out there.
It is easy to stereotype anyone. We humans are good at that. For me, going to a stockholders meeting is a smart thing to do for my investment, a cheap way to broaden my research, and a reminder that even “legal entities” like corporations are populated by people who are fun, flawed, and fascinating. Thanks to everyone for doing what you do.