Diamonds are a girl’s best friend
(Continued) ...
Initial Valuation
When this plan was developed, the block of half a dozen significant shareholders entered into an arrangement that would allow their combined individual estates to pass 28% of their joint-stock holdings to the 28 Group I designees of the post-WWII generation of Detroit. At that time, the estimate of this 28% share rounded to $350 million, implying total corporate equity of $1.25 billion.
Similarly, Group II from the East Coast, which controlled the 23% share, had a total rounded value of $287.5 million.
Collectively, these two groups held a combined total value of $637.5 million, representing a controlling amount of 51% of the total common stock. Let us assume that the combined total of boys equals 51 individuals. This assumption implies that each individual became nominally responsible for a 1% block of common stock valued at $12.5 million as of mid-1955.
Initially, we assume an average growth in value from mid-1955 to mid-1958 based on nominal rates detailed in the MacroTrends Data Download of the Dow Jones - DJIA - 100 Year Historical Chart (https://www.macrotrends.net/stocks/charts/INDU/dow-jones-industrial-average/stock-price-history). We make this assumption to reflect the additional amount of stock needed for transfer as required in a well-known
Clayton Antitrust case. The U.S. Supreme Court directed commencement within 90 days and “completed within not to exceed ten years.”
Assuming an average value-growth through June 1958 and the need to keep the percentages of the two blocks balanced, we believe that the combined holdings before the Federal-Court-mandated transfer had increased to about $675.4 million. Per a transmitted verbal report, the holdings of Group A increased from 28% to 32%.
Assuming that Group B was at parity with Group A, we may determine a 4% increase for Group B. This event increased the Equity position of Group B from 23% to 26.3%, with a per-participant share-increase from 1% to 1.14% for individuals in both groups.
This action means that, under the direction by the Federal-Court to divest, the combined increase for Groups A and B amounted to $96.5M, producing a combined share-increase of 7.3%, from 51% to 58.3%.
Department of Redundancy Department—Sector R
Next we will focus on the two equity groups combined for our projection to the near-present day. Having greater familiarity with Group A over the decades allows for the use of this part of our example to explore what may have happened over a more-extended period of time.
Moving forward from 1958, we will explore the process of diversification in respect to Dividend Yield. We will summarize the matter of Profits and Dividends as clearly as possible for the benefit of our readers. First,
Profit belongs to the owners of a company. We determine the value of Profit as the difference between business Revenue (the amount of money that returns to the company through its annual activities) and Expenses (costs paid out annually for labor, buildings, equipment, materials, and other necessities), such that Revenue minus Expenses equals Profits. Second, as partial owners may exist, the Profit must be divided fairly among them. In order to achieve this, we divide the Total Value of the company by the number of shares outstanding. One share of stock equals a uniform percentage of ownership. Finally, we measure dividends as the percentage of the Profit derived from the annual corporate revenue.
Next we measure Profit in respect to the underlying Net Asset Value. This includes all of the natural and intellectual property that the firm owns outright after paying operating expenses, including interest on money lent to the firm. These loans may be paid back in whole or in part at specified times. Businesses create another form of debt called Bonds, which structure debt into independent entities that may be bought or sold on the open market in much the same way that stock changes hands.
We express Dividend Yield as a percentage--a financial ratio (Dividend/Price) that indicates how much a company pays out in dividends each year relative to its stock price. Naturally, many investors prefer to mix stocks and bonds in their portfolios in order to minimize their own risk. Ergo, the Stock Market competes with the Bond Market for investor funds. However, we will focus on stock-value growth in our demonstration, which extends over sixty-six years. For illustration, we will employ the measure of the Dividend Yield Index. We calculate this as the total dividends earned in a year divided by the price of stocks in the Dow Jones Industrial Average (DJIA). Historically, dividend yields for the principal 500 firms typically have ranged between 3% and 5%.
Let’s Do the Time Warp Again!
Returning to the MacroTrends Data Download of the Dow Jones - DJIA - 100 Year Historical Chart, we hold the percentage-ownership of the Group I Trust and its companion at the fixed percentage of 58.3% as of 1958, which commences from a foundation value of $771.9 million calculated above for that year.
By 1958, the strategic plan for diversification had emerged as a necessity. The primary focus became the ensurance of adequate restoration capital. This was necessary, especially if the corporation of concern ever needed funds in order to restore it in the wake of bankruptcy. Given the reality of the Great Recession that drove many businesses to the bankruptcy court, let us use June 2009 as a breaking point.
For our example, this means that, without interruption due to bankruptcy filed by Company A in June 2009, the equity growth for the pair of trusts discussed is as follows:
Riding the rollercoaster from mid-1958 to mid-2009, we find that the average market value of industrial stocks increased by almost 18-fold per the DJIA. Adjusting for inflation over that period, the DJIA indicates that values had more than doubled due to the diversification of the stock portfolio held by the pair of trusts. Many companies listed in the DJIA table remained stable as their share values increased. Nevertheless, several firms in the automotive industry entered a mire of deep doo-doo.
Filling Holes in the Sea of Finance
Anyone who has done a bit of gardening understands the process of filling a hole by skimming dirt from multiple nearby locations in order to gather the necessary amount of fill-dirt. Similarly, shifting liquidity to a financial hole in the sea of finance requires greater time, care, and effort in order to achieve a satisfactory result. Halfway between the Great Recession (observed globally between 2007 and 2009) and 2021, I noticed a couple of interesting developments in the public records of Corporation A that were filed with the Federal Government in respect to the public-stock holding of that corporation. Curiously enough, one of the quarterly filings in 2015 suggests a possible “Hail Mary Play.” Those playing on the corporate field re-achieved the goal set by the combined fund-trustees in 1955 through an induction of capital to Corporation A that helped the firm to recover from its bout with bankruptcy. These records indicate that Wilmington Trust holds 28% of the common stock while the Christiana Fund holds 23% of the new corporation. The pair of funds had restored the 51% mark set in 1955 by the same proportions.
Le Grand Au Revoir
In this episode, we explored how women, almost two-hundred years ago, have influenced the economic integrity of their families, both immediate and distantly related, and themselves. We used this example as a jumping-off point to outline a model based on the premise of family first. As we have seen, the goals of this model are survival through the generations and flourishing as a cohesive group.
In closing, we hope that our rounded-off example has simplified the erudite and obscure matters presented. As for myself, I prefer to hide in plain sight. Those readers with the interest, skills, and time should not have too much of a challenge achieving a higher level of transparency. Remember, Economics can be fun!
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Dr. John F. Sase teaches Economics at Wayne State University and has practiced Forensic and Investigative Economics for twenty years. He earned a combined M.A. in Economics and an MBA at the University of Detroit, followed by a Ph.D. in Economics from Wayne State University. He is a graduate of the University of Detroit Jesuit High School (www.saseassociates.com).
Gerard J. Senick is a freelance writer, editor, and musician. He earned his degree in English at the University of Detroit and was a supervisory editor at Gale Research Company (now Cengage) for over twenty years. Currently, he edits books for publication (www.senick-editing.com).
Julie G. Sase is a copyeditor, parent coach, and empath. She earned her degree in English at Marygrove College and her graduate certificate in Parent Coaching from Seattle Pacific University. Ms. Sase coaches clients, writes articles, and edits copy (royaloakparentcoaching.com).
