On February 15th of 2008, I had the opportunity to visit the headquarters of Berkshire Hathaway for an Omaha Q&A session with Mr. Warren Buffett followed by lunch. It was a privilege to co-host our Texas grad school classmates for a two hour sit down with the Oracle of Omaha.
Today’s investment environment presents an entire set of paradoxes. Interest rates are rising further while inflation measures have started to decline.
German economist Horst Siebert originally coined the term “Cobra Effect” to illustrate how unintended consequences can result from well-intentioned solutions.
In the summer of 2000, I used my Merrill Lynch internship money to purchase $5,000 worth of shares in Amazon (AMZN). By summer of the following year, I had lost 61% on my original investment.
Stock-based compensation (“SBC”) is compensation that is based on the value of a company’s equity. It can take the form of securities bearing an equity interest in the company or obligations to pay cash in an amount based on the value of the company’s equity. The latter forms are treated as liabilities since they are settled in cash, while the former are treated as equity. Since equity-classified SBC affects share count, investors can be diluted by the practice and should understand its impact. This paper is intended to serve as a guide to understanding SBC from an investor’s perspective and will focus on equity-classified SBC.
