The BSG Invitational has begun for August 2013

On your Mark.  Get Ready.  Get Set.  GO!

The BSG Invitational contestants are off and running.  Already many of them have made huge mistakes, putting themselves out of contention!

There are SO MANY ways to lose this game, and the current round of contestants have found them.

I see some teams that are SELLING stock.  Oh what a terrible way to raise capital it is!  Selling stock decreases your earnings per share by diluting it over more investors.  So if two companies have the same earnings, the one with the fewest shares outstanding will have the higher EPS.  EPS is one of the most important financial indicators and the primary measure of profitability.  Selling shares reduces your profit.  Should a company want more profit or less profit?  That’s right kiddies, a company should want more profit.

When should you sell shares?  When you think that they are overvalued by the market and when you think you can buy them back in the future at a lower price.  You don’t sell shares merely to raise cash.

When should you buy shares?  When you think that they are undervalued by the market and when you don’t plan to sell them, or you plan to sell them at a high profit when you expect them to be overvalued in the future.  Your decisions and profitability affect the stock price.

So it is possible to attempt to manipulate the market by selling stock, causing the price to tank, and then buying the stock back.  But consider this question.  Where are you going to get the cash to buy the stock back if you do it?  You won’t be able to do it with profits that you reinvest in stock – since you don’t want profit is you want the stock to tank.  Do you want to do it with loans?  At the beginning of the game your credit rating isn’t A+, and you already have long term debt.  You will have to pay a premium interest rate to take out debt with sub-prime credit.  You might not be able to make as much profit as other teams who improved their credit and took out loans at lower rates to invest in capital improvements.  Besides, stock manipulation should be illegal, right?

The BSG is based on profitable production and management, not stock manipulation.  Causing your company to tank to buyback stock at a lower price will most certainly cause you to lose rounds with poor or reduced EPS, worse credit, and fail to invest in capital improvements.  Manipulate the stock at your own risk.

A note about supply and demand.

I’m surprised that so many contestants don’t observe the fundamentals of supply and demand in this game.   At the beginning, there’s a dramatic excess of production capacity relative to sales demand.  There’s too much supply for the demand.  Should you be increasing capacity at the start or decreasing capacity?  Overall, everyone should be decreasing capacity.  But everyone tends to increase capacity capacity or keep it the same, with very few players decreasing capacity.  That’s because they’re thinking of their own self interest instead of the overall affect on industry profitability.  It’s this same problem that cause rural farmers to constantly deal with low prices of grain instead of reducing production.