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Question on fixed return v. variable return

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Eefrit Eve Financial Services	Posted - 2007.07.05 23:20:00 - [1] Essentially I am interested in hearing from investors what their opinions are on fixed v. variable returns. Would you rather have a return that you can bank on so to speak but that you also know will not grow more, or a return that varies with the markets? I am asking because I have had a few people ask me why FIN-U is completely variable rather than being fixed or partly fixed, and from talking to them it seems people think that having a totally variable return is some loophole put there to try screw over investors. Hence I ask for your help in giving me some feedback that I can use to assist me in making some strategic decisions. Thanks in advance. /Eefrit
Ionia Advanced Manufacturing	Posted - 2007.07.06 04:56:00 - [2] In essence this is a share vs bond discussion, kind of.
Prodigal Caldari New Genesis Project	Posted - 2007.07.06 05:22:00 - [3] Fixed returns are often set lower, though the security is the trade off here. Variable returns can skyrocket or they can tank, all part of the risk. Any investor worth his salt would have a combination of both imho.
Kasumi Kreig Caldari United Systems Navy	Posted - 2007.07.06 06:24:00 - [4] I'd prefer a guaranteed range. So for a stock like FIN, instead of guaranteeing a return of 4%, what if it was guaranteed to return 2%, with essentially no upper bound? (Maybe for everything > 10%, you reinvest half of those profits in the corp, or save for a bad month.) Perhaps the average return would still be 4%, but at least there's more of an up-side, in addition to a minimum guarantee. One of the stocks I own is guaranteed to return 25 cents for the first three quarters, then makes a variable-sized payment during the last quarter. They usually pay between 20 cents and 45 cents, depending on how well they did that year, though they technically have the option of paying 0 for the last quarter. I like that certainty plus opportunity to share in larger returns. But since most people probably aren't looking for a multi-year investment with in-game stock, a guaranteed minimum return per month simulates this. It does mean you have a "catch-up period" for losses. Here's a simplistic example, ignoring how percentages compound. If you lose 3% one month then only make 5% the next two months, you pay out 2% return for the first month, for a total loss of 5%. The second month, you make 5% profit, which brings you even. But you still must pay out 2% dividends, which means you're still at -2%. The third month, when you earn another 5%, that puts you at +3%, and you can return all of that 3% to your shareholders. They've made a total of 7% return over three months, which isn't that great. But they've been guaranteed that return, with room for a lot more.
Roemy Schneider BINFORD	Posted - 2007.07.06 09:28:00 - [5] Edited by: Roemy Schneider on 06/07/2007 09:30:01 well.. a fixed rate is indeed a sort of security - or rather, it feels like one. however, ISS has shown how that "felt" security can be abused easily during and the months after the outpost-ipo-conversions. anyway, the point about variable returns being more profitable in the long run would be a cute rule-of-thumb but FIN doesn't really add to that ;) therefore i usually get a really close look at a business (~plan) before i invest, up to the point where i could basically reproduce the model - if i reaaally wanted to (aka had the time/skills/means etc); transparency is a lot more helpful than people may think. i believe investors couldn't care less about fixed or variable rates as long as they can follow what's happening to their money and it's one of the reasons i never invested in FIN (sry, the business plan had close to nothing about the actual business in it) and i've been trying to dump ISSO ever since they got "confused" with their loan policy (i admit it: the colorful pdf made me believe that they'd be lot more informative) so, in the end it's up to the CEO which model he prefers: great profit margins in excess of a fixed interest rate, or, less pressure with a "true" dividend. and while we're at it: all these fancy models about bonds, shares, whatnot and the endless egsex discussions which corp is actually this and/or that... this may be great rl-roleplay but probably doesn't bear fruit with 90% of possible investors: less pdf'ing about the corp structure, more info on the actual business plz p.s.: yes, i'm a lil' bitter today, sry if it shows :o - another month, another blatant lack of ISS reports and i can't get these 15bil in ISSO shares "unlocked" -
Eefrit Eve Financial Services	Posted - 2007.07.06 10:08:00 - [6] Originally by: Roemy Schneider less pdf'ing about the corp structure, more info on the actual business plz I highly doubt you will ever get a lot of detail on the actual business from anyone. Basically you are asking me to tell you (and anyone else that is reading) exactly how to go out and copy my business model - I'd be daft and incompetent if I told you that as would any CEO of a corp that is not based on brute force logistics. FIN for example, you know exactly what we do - we buy T2 BPOs and produce off them. How much clearer could that be? Do you want to know which ones and why? Should I tell everyone which T2 BPOs to look out for etc? Had I done that FIN would have been hit MUCH harder with invention as I would not have been able to minimise losses to the extent that I have. Overall if you want total control and transparency I would suggest not investing your Isk and instead running your own corp with it. Back to the topic though - Fixed return v. variable return. Which is better and why? /Eefrit
Roemy Schneider BINFORD	Posted - 2007.07.06 11:07:00 - [7] well - i found lots of ways to invest something above 90mil altogether now. and prior to nyphur's mom-copying, the only other single-digit returns were ISS and ricdics labs where i participated in this cute lil dutch auction just for the heck of it. so, my initial statement stands: it's the CEO's choice, how "securely" he wants to run his business: - if you don't trust investors, go for a fixed rate and keep the business idea largely to yourself. probably suits best for those IPOs that just do it for the sake of an IPO and, in some cases, haven't planned out every detail (yet). this has proven to be possible for up to 285bil. - if you're not afraid of transparency, let the people think it through, have them do a couple of calcs on their own and let them decide how profitable it can be. later on, you can even discuss the return rate with them - it's more like doing business rather than working (off) an IPO. -
Block Ukx	Posted - 2007.07.06 12:00:00 - [8] Originally by: Eefrit Back to the topic though - Fixed return v. variable return. Which is better and why? There is no real good answer to your question. ItÆs an investorÆs choice and it really depends on what they are looking for. Fixed returns are essentially a fixed-rate-bond and are good for investors looking for a fixed income. Variable returns can be for both bonds and shares. Investors interested in long-term growth will go for variable return shares, where a portion of the companyÆs net profits is returned as dividends and the rest is re-invested, thus increasing the share price. For example BSAC offers three types of investments. BSAC Common Stock (Mineral Reserve) is a 100% growth fund. All profits are re-invested in the company. In contrast, BSAC Capital Ships Fund is an income fund, where all profits are distributed back to investors. The last stock, BSAC Preferred Stock, is + & + where 50% is re-invested and 50% is dividends. BSAC has issued bonds in the past, and those were also very popular. So itÆs really an investorÆs choice. Block Ukx BSAC President
Kazzac Elentria	Posted - 2007.07.06 12:09:00 - [9] Personally I always go for the variable returns since inevitably even the guaranteed returns can be variable due to external forces at work. Everything has a risk and I would much rather tie my ISK up into something that has the best possible return rate regardless of risk involved.
Ionia Advanced Manufacturing	Posted - 2007.07.06 12:37:00 - [10] Neither is better, they are just different. Everyone should have a balanced portfolio IMO, consisting of both fixed return and variable return securities, the proportion of each dependent on your risk profile.
Blue Dice Gallente Flying While Intoxicated The Threshold	Posted - 2007.07.06 13:28:00 - [11] Originally by: Eefrit Back to the topic though - Fixed return v. variable return. Which is better and why? Not long ago for me the answer was clear: Variable. Why? I was not in need of a constant income but just a way to generate some long therm additional income. Therefore I didnt mind to have a bad month here and there and then better Dividends again, but it was the posibility to get better dividends that looked interesting. Now my answer would be: Fixed. Why? I've seen some investments over a few months now. The fixed ones bring their fixed dividends, that's fine. The Variable ones bring (in 90% of the cases) the minimum % promised at the IPO. So in general i'm going better with the Fixed ones. How could that be changed? Mainly I'm missing one thing: Shares that go with the company and dividends that are not calculatedon a Share Issue Value Price! Did you ever see a company in RL pay a dividend telling everyone that they payed 3% basing that 3% on the Value the Shares had 20 Years ago, when infact the company size has multiplied and the share Value is now tenfold what it was? So to resume: I'd very much like to see some variable return shares that are based on the actual value of a company and generate a dividend representing that actual growth.
Shar Tegral	Posted - 2007.07.06 13:35:00 - [12] The investor gets the choice of what he will accept when he chooses to invest. No one held a gun to his head. As long as you adhere to all of your guarantees and honor any variables... f'em if they want to btch & moan. In such situations I'm a cold heated bastard. I've little patience with such antics myself. If the investor is not happy I'll happily cash him out (if that's part of the deal) or help him shift his investment out of my pool. After all, who wants a turd in the pool. The Eve-Online forums may not have invented whining, but they sure have perfected it. Misanthropy: It's not just for Rednecks!
Taji Taka Caldari Investment Relations Limited	Posted - 2007.07.06 13:42:00 - [13] I give my investors the option of choosing payout percentages every cycle (2 weeks for me). If they go 100% they get paid out 100% of their profit share. They can choose in 10% increments how much to get paid out and how much to re-invest.
Marodi Julita Sublime Captial Investments	Posted - 2007.07.06 16:15:00 - [14] For something mundane (such as T1, trading stocks) I prefer a fixed. For something more unusual, such as Zerodot or C-R-A i'd prefer a variable since there is generally a higher payout than would most likely be if they were fixed.
FastLearner Fury Holdings Brutally Clever Empire	Posted - 2007.07.06 16:27:00 - [15] For myself I'm far more interested in whether a buy-back scheme is in place (even if at a discount to the share price) - as that sets a realisable minimum value for the shares (barring scams). Given that, I'd prefer variable returns myself - as anyone with any sense is going to set fixed returns at a level lower than they'd expect to give were they paying a flexible return.
Ramblin Man Empyreum	Posted - 2007.07.06 17:46:00 - [16] I think the problem with variable, as you've noted, is that it lacks ... how shall we say ... an ability to motivate executives. (Expressed as "They're going to screw us over!") The primary thing people seem to have been really *****ing about w/ BMBE seems to be not a lack of dividends, but a lack of dividends measured against executive compensation. So, as most noted, diversify, yattayatta(figleaf). However, I think a business plan with relative executive compensation would fly a long way in the current atmosphere. (There's definitely something to be said for, "Yeah, I got screwed with you guys on that last month. " when times are bad)
FastLearner Fury Holdings Brutally Clever Empire	Posted - 2007.07.06 19:54:00 - [17] Originally by: Ramblin Man I think the problem with variable, as you've noted, is that it lacks ... how shall we say ... an ability to motivate executives. (Expressed as "They're going to screw us over!") The primary thing people seem to have been really *****ing about w/ BMBE seems to be not a lack of dividends, but a lack of dividends measured against executive compensation. So, as most noted, diversify, yattayatta(figleaf). However, I think a business plan with relative executive compensation would fly a long way in the current atmosphere. (There's definitely something to be said for, "Yeah, I got screwed with you guys on that last month. " when times are bad) I can agree with that. In my own IPO i take 50% of gross profits as my management fee - BUT my management fee is reduced (potentially to zero) if return to shareholders drops below 2% per week. To date I've always had my full 50% - and have always had good comments from share-holders, with noone complaining about me taking half the profit as my fee. When I launched the IPO, there WERE some comments about my fee (as a percentage) being high - but that motivates me to put the effort in to perform well (and the cut-off level below which my fee falls protects the investors to some extent). On variable return IPOs it could well be a model to encourage confidence from both sides - where the return to the management grows (as a percentage as well as in absolute amount) as profitability rises.
Shadarle	Posted - 2007.07.07 07:14:00 - [18] In short: Fixed - Great for people who want a lower-risk investment Variable - Great for people willing to take a bigger risk. I have invested in both kinds... but currently I think I'm favoring 7-10% bonds over random payouts. Mostly because random payouts tend to be lower than 7-10% anyhow in my experience. I wouldn't bother investing in anything for a fixed 5% again like ISSO. That's just too tiny to make it worth my time. Might as well keep the money in my wallet and buy more T2 BPO's. Tanking Setups Compared Stacking Penalty / Resists Explained
Eefrit Eve Financial Services	Posted - 2007.07.07 22:25:00 - [19] Thanks for the feedback guys - It has been helpful. /Eefrit
Motivated Prophet Zerodot Schools Power Corrupts Industry's	Posted - 2007.07.08 03:10:00 - [20] What about a bonus structure? It's variable, but the CEO gets a portion off the top when you hit certain thresholds. 20% RoI this month? The top 1% of that goes to the CEO. Of course, it can't be quite that simple (otherwise you could arrive at a situation where the CEO gains isk and the dividends go down when she donates to the corp, since it would put it over the threshold). But something like ISSO's setup, where they get all returns between 5% and 10%, only far more granular, seems very workable. MP -- Proud steward of 47 billion isk in public money, and counting. Ask me about mineral compression!
Ricdic Caldari Corporate Research And Production Pty Ltd Zzz	Posted - 2007.07.08 09:01:00 - [21] Well at least in C-R-A's case, I prefer to have a variable rate due to the up and down nature of research. One month we may have a huge amount of the alts log in and hammer out the research, whilst other month's like this month it may be relatively poor. For example, last month we posted a 1.4 billion isk dividend, whilst this month was only 550m. It really does bounce around like crazy, and I could theoretically only offer 700m and pocket the difference, but it wouldn't really be fair on the investors. Tough choice I guess, both have their pro's and con's. Need Empire Research Slots. Click here
Taikun Gallente Serenity Prime Praesidium Libertatis	Posted - 2007.07.08 09:13:00 - [22] Edited by: Taikun on 08/07/2007 09:14:02 Originally by: Eefrit Essentially I am interested in hearing from investors what their opinions are on fixed v. variable returns. It is a matter of who assumes the risk of the variable nature of the investment. Is it stable like housing and not liable to get blown up? Fixed is proably best. Is it variable like Ricdics operation open to a crazy f-er like my self willing, motiavted and able to fund an empire alliance war to bring his operations to its knees by popping his customers. Probably variable would be best. It depends upon the investment and the stability of the assets in question... or the stupidity of your customers. Taikun ----------------------------------- For lack of a better word ladies and gentlemen... Greed is good.
Ricdic Caldari Corporate Research And Production Pty Ltd Zzz	Posted - 2007.07.08 10:13:00 - [23] Originally by: Taikun Is it variable like Ricdics operation open to a crazy f-er like my self willing, motiavted and able to fund an empire alliance war to bring his operations to its knees by popping his customers. Good luck with popping alts that never undock. Those in my alliance have their mains (from all over Eve) deliver all their goods to the station and contract to the alt. The only real action you would get, would be 40+ pilots with 10-20 hours of spare time shooting a hardened POS and running a non-stop tank. But either way, your point is still valid and can have an affect on shareholder's income in specific circumstances. Need Empire Research Slots. Click here
Eefrit Eve Financial Services	Posted - 2007.07.08 11:02:00 - [24] Originally by: Ricdic The only real action you would get, would be 40+ pilots with 10-20 hours of spare time shooting a hardened POS and running a non-stop tank. My young padawan, you forget the exhaust vent. An alliance could simply send an ibis in with a t1 rocket, and if aimed well (using the force of course) it would take down your POS much easier than that! /Eefrit
Motivated Prophet Zerodot Schools Power Corrupts Industry's	Posted - 2007.07.08 15:58:00 - [25] Originally by: Ricdic The only real action you would get, would be 40+ pilots with 10-20 hours of spare time shooting a hardened POS and running a non-stop tank. You have clearly underestimated how many alts Proton, Steel and I have, and how bored we get on Sunday evenings. MP -- Proud steward of 47 billion isk in public money, and counting. Ask me about mineral compression!
Ricdic Caldari Corporate Research And Production Pty Ltd Zzz	Posted - 2007.07.09 06:17:00 - [26] Originally by: Motivated Prophet Originally by: Ricdic The only real action you would get, would be 40+ pilots with 10-20 hours of spare time shooting a hardened POS and running a non-stop tank. You have clearly underestimated how many alts Proton, Steel and I have, and how bored we get on Sunday evenings. MP Somehow I don't think Proton would be involved, due to a current business venture we have running Shooting oneself in the foot isn't always the wisest thing to do. Need Empire Research Slots. Click here
Eefrit Eve Financial Services	Posted - 2007.07.09 07:54:00 - [27] Originally by: Ricdic Somehow I don't think Proton would be involved, due to a current business venture we have running Shooting oneself in the foot isn't always the wisest thing to do. You are the first person ever to accuse Proton of wisdom Wu wub you Pwoton!
SiJira	Posted - 2007.07.14 21:32:00 - [28] fixed return with extra for good periods can not be worse than variable where nothing is paid for loss periods ____ __ ________ _sig below_ the jet cans are made so that people that dont mine can get free ore miners ritually donate the ore to anyone wishing to take some

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