Gaining Personal Net Wealth (PNW)

[sleepy]

I've always had trouble with PNW, much more than say company book value. As I experienced in my Texas Tea playthrough, I made the mistake of buying too much on margin and then having to rescue my purchasing power with buying back stock over and over again. I did get to experience the "upward spiral" during boom times when I owned a large proportion of my company.
As a beginner, I found the strategy that works is to buy shares of my company slowly, not too much on margin, and buy back stock every so often. I haven't reached the point where I want to play "robber baron" tactics. I guess there are different strategies so I will have to play more to get used to it. At the end of the campaign I managed to trigger the win condition by buying a huge amount on margin to bring my PNW up from $9 million or so to the required $15 million, ending the game before any negative consequences could set in.

[Gumboots]

Yup, the old "buy stock like crazy at the last minute" trick is a good one for getting yourself out of a hole.

Buying back stock raises the stock price. This makes it harder for you to buy more stock, unless you're in a lucrative situation where you can rapidly spiral the stock price. In a more normal situation it's usually best to do most of your acquisition of stock before starting buybacks.

Instead of spending early company cash on buybacks, spend it on expanding the company (but without issuing stock). This makes for a stronger company, and therefore a higher stock price anyway, so your purchasing power will be gradually rising. Once you have a solid wodge of stock and are running out of options for company expansion, that's a good time to start thinking of stock buybacks.

Regarding buying on margin: if you will have to sustain the debt for any length of time, work out beforehand how much debt you can afford. If the interest on your margin can be covered by dividends and wages, then you are in a safe position. As a rule you can assume the interest on your personal debt will be charged at whatever the current prime rate is, so it'll vary from 5% in a boom up to 10% (or whatever it is) in a depression.

[RulerofRails]

As a rule you can assume the interest on your personal debt will be charged at whatever the current prime rate is, so it'll vary from 5% in a boom up to 10% (or whatever it is) in a depression.

Not meaning to question what you said, but do you remember if somebody tested the interest rate paid on personal cash somewhere?

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@sleepy, growth in profits and company book value can be quite high at the beginning of the game. This is why we all say invest early.

Also, anything you buy with bonds doesn't count towards CBV. The ratio of CBV to profit is important for share price. Any net profits from bonds will raise this ratio. This is good for share price.

Bonds should be maxed out, but treated as funds that need to only be used on high return investments. When going after the average 20% or so ROI of good industry (prime rail connections are good too, but it's harder to calculate their ROI) for example, those bonds will end up PAYING you at least 7% per year (based on issuing at the high interest rate of 13%). On 20 bonds ($10M capital) that's $700k per year. When refinanced to the minimum 5%, that will be $1.5M per year.


The robber baron tricks are just for a laugh really. Using them is so powerful, that there's little challenge left in the effort of building an efficient company.

[Gumboots]

As a rule you can assume the interest on your personal debt will be charged at whatever the current prime rate is, so it'll vary from 5% in a boom up to 10% (or whatever it is) in a depression.

Not meaning to question what you said, but do you remember if somebody tested the interest rate paid on personal cash somewhere?

Yeah I did test that once, and IIRC there's also something about it in the official game readme. Going from memory, if you have negative personal cash (ie: have bought on margin) then your debt will be hit with interest at the prime rate. However if you have positive personal cash, that will only accrue interest at prime - 4%. So from 6% in a depression down to 1% in a boom.

[sleepy]

It never occurred to me you had to pay interest on bonds and personal debt, even though it was staring at me right in the face. Definitely ranks among my "learning experiences". It suddenly makes sense to pay off those bonds in exchange for a lower interest rate when rates are low.

[Gumboots]

Definitely. It's generally not worth taking out bonds at much over 13%, sometimes less. It's usually worth paying them off and getting new ones if you can save 2%. At a 2% difference, you'll make up the refinancing cost in a couple of years and then start getting ahead.

Short version is don't take them out at too high a rate (you have to be able to make more than the interest before the bond is worth using), refinance them as soon as it's feasible, and once you have them down to 5% just sit on them and use your company cash for expansion. Don't think about paying them off until you run out of useful ways to expand. In fact I'll often sit on the full $10 million worth of bonds at 5% right through to game end, depending on how things are going.

And if anyone says that paying off a bond boosts your company's book value, kick them in the butt. Hard.

[sleepy]

I think I'm getting the hang of PNW now, but I'm still not sure about some things. In my last campaign I only owned roughly 10% of my company until I met the other requirements, so I was pretty far from the PNW goal. I experimented with dividends but according to another forum thread they're not worth it until you own most of the company, which for some scenarios is difficult. Buying back stock seems to be a tried and true way of restoring purchasing power. How do dividends compare to buying back stock? According to what Gumboots said, I should not be concerned with buybacks early in the game, but I wonder how much to buy on margin at the beginning of the game (even with great company profits my PNW did not grow that much )

[RulerofRails]

How do dividends compare to buying back stock?

In a normal game I wouldn't be making that comparison. They should be used differently.

First off, any money spent on dividends or stock buy-backs has a close to 0% ROI. Any such moneys are not available to invest for further company growth. The biggest long-term gains in share price are the result of company growth.

Dividends:
Dividends on the low to medium range (up to $1 per share) have a small effect on stabilizing share price generally, and a noticeable impact on the year end adjustment. With any dividend the end of year drop is reduced. These things can be useful if you have a large position on margin that you are trying to protect in a down-turn. You need to maintain a cash balance for any dividend. In a down-turn it's naturally harder to get and hold onto cash.

Dividends are simple. Your company pays a certain amount each year, but you only receive the portion for the shares that you personally own. For example, if you own 10% of your company you are "wasting" the other 90% (or possibly "gifting" it to your rivals). Not really an efficient use for your hard-earned company profits.

Some players use dividends throughout much of the game to maintain personal debt when doing so is considered more important than the waste involved. I'm aggressive so will more often than not reach the high ownership target before interest payments start compounding debt out of control. At which point I set dividends high.

Stock buy backs:
Buying back stock has a short-term effect to decently boost share price. This can be enough to sneak past a margin call. It makes sense that with fewer shares available, the remaining shares will be worth more. But, the cash spent on the buy back is erased from CBV so there is less support for share price at the new level. In the following months expect to see price settling slightly, but still higher than before the buy back.

The main attraction of stock buy backs is that you increase your ownership % level without spending any personal cash. Beware! as your rivals stake in your company will also increase.

The common strategy for PNW buys back stock first which gives a better stock ownership %, then at some point (a timing/strategy-call) switch to paying out high dividends. Margin buying is a shortcut of sorts, to eliminate some of the less-than-efficient stock buy back period, and start paying dividends sooner.

As long as adequate cash is available, you can purchase 5% of your company's shares at once. The greater your ownership in the company, the bigger realized increase in percentage terms per buy back. As an example with a 50% ownership it will take 10 maximum-cost buy backs before you own all of the company.

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I wonder how much to buy on margin at the beginning of the game . . .

As much as you can. As it says earlier in this thread, you need to be checking at least monthly in the second half of the early years to see if rising net worth allows enough purchasing power for another purchase. It's all about obtaining a good ownership stake with the risk countered by the "insider-trading" knowledge that there's enough juicy profits ahead to sustain an inflated share price until CBV can catch up.

In the first 2 years of a healthy company generally buy everything running the share price up as high as possible. After that, buy when you know the share price is about to rise to a certain level. You don't care if your action in buying the shares inflates the price before the price actually rises, it might even rise further. Guesstimating the level to aim for will require a bit of practice, but it's not that difficult.

In every game I buy as much on margin as I can up to a certain point. That point is mainly determined by the growth opportunities I find available. As a minimum it extends at least up to the point that I max out bonds for high ROI investments which are guaranteed to increase profit. Sometimes conditions will be right to take ownership to 100% in the early years, but when I am cautious I tend to end up with 50-60%.

[sleepy]

Thank you, your post was very helpful in clearing up some things, especially the first bit about long term growth and the "common strategy for PNW".

I've never been a big fan of PNW or the stock market really. I wish you could buy stocks in industries, instead of buying up individual factories/buildings. For example, invest in dairy commodities (aptly named MOO) and then start shipping lots of it. Or maybe instead of each building being individually owned, there are "industry companies" like a lumber company that operates in a certain region of the map. You could form corporate deals or sabotage. So many possibilities to expand on PNW.

[Gumboots]

Dividends are simple. Your company pays a certain amount each year, but you only receive the portion for the shares that you personally own. For example, if you own 10% of your company you are "wasting" the other 90% (or possibly "gifting" it to your rivals). Not really an efficient use for your hard-earned company profits.

I don't care about this factor. The way I see it, if I have a PNW goal to meet then I'll use any tactic to get there. It's irrelevant how much cash is gifted to AI companies. All that matters is how much PNW I end up with, while still meeting other game goals.

This means that if buying heavily on margin early in the game and then stabilising my personal debt via dividends seems like the right thing to do for the circumstances of that scenario, then I'll just do it. It's all a balancing act. Whatever works.

Buying back stock has a short-term effect to decently boost share price. This can be enough to sneak past a margin call.

Usually, having to do a buy back to sneak past a margin call is a sign that you're ultimately screwed.

The common strategy for PNW buys back stock first which gives a better stock ownership %, then at some point (a timing/strategy-call) switch to paying out high dividends. Margin buying is a shortcut of sorts, to eliminate some of the less-than-efficient stock buy back period, and start paying dividends sooner.

I never use that "common strategy". I always margin buy first, using whatever dividends I want for myself, bearing in mind that the company has to be able to pay them while still having cash for expansion. That basically determines how much I buy on margin and how fast.

I usually reserve stock buy backs for later in the game, when I'm running out of ways to expand.

@Sleepy: The main thing to bear in mind is that there are usually several ways to play any given scenario, so just have a think about it and try stuff out. If you find something that's fun and works for you, use it.

[RulerofRails]

The common strategy for PNW buys back stock first which gives a better stock ownership %, then at some point (a timing/strategy-call) switch to paying out high dividends. Margin buying is a shortcut of sorts, to eliminate some of the less-than-efficient stock buy back period, and start paying dividends sooner.

Because you didn't understand this, "first" was poor word choice on my part. I didn't mean early in the scenario. I meant "before paying out high dividends". I hope people understood from the beginning of my post that they are sacrificing company growth with either of these methods. It's a judgment call as to when company growth doesn't matter. The "first" means once this point has been reached. There is a case for a balance between PNW and company growth, but it's impossible to advise in a general way on what's right in a particular situation. I have achieved better results when I made the decision to stop focusing mainly on growing the company a little later in the game. Feel it out and see for yourself.

Yes, the main thing is to have fun no matter what theoretically gives the best results.

Some people make large sacrifices of potential company growth early in the game. (Enough dividends to control interest on personal debt is only a small sacrifice.) We are talking strategies like starting a company with the other investor slider way down (if you only drop it a little, for example to $900k you may be able to buy on margin right away which is good), strategies that require waiting (for example this), and the idea to maintain a small healthy company in which you buy back lots of stock before expanding.

In many maps there is enough time that using those strategies will still enable a medal. Margin buying in the early game is the strongest tool. Master that and the rest will largely fall into place.

[Gumboots]

Ah. Before paying out high dividends makes more sense.

And I agree with the rest. I sometimes use the "other investor slider down" trick to get a good start on stock.

[Gumboots]

Hey here's something odd. I had tried a "normal" robber baron start on the Latvia v18 scenario.

1/ Start company with standard $90k my cash and $900k investor cash.
2/ Buy back as much stock as possible, without taking out a bond first.
3/ This leaves me with 1,000 shares and other investors with 2,000.
4/ Resign from company, then sell my 1,000.

5/ First problem: for some unknown reason, RT3 won't let me short sell any stock. This means I make about half as much cash as usual, because short selling an extra 1,000 would basically double my profit out of the massacre.

6/ Second problem: start another company, and find out that not only it is worse off than the first company in terms of cash, with investors not offering much at all, but it also gets hit with 15% interest on the first bond.

IOW, this start is useless because the second company is more crippled than the first one.

So then I thought I'd try starting the first company with different amounts of investor cash, just because I could and something might happen. There were some interesting results here.

Just for the heck of it, I tried starting the first company with my $90k and another $720k from investors, so investor cash was 8x my cash instead of 10x my cash. Then did the same thing: bought back stock until company was almost out of cash, resigned from chair, sold my 1,000 stock. For some reason, this time it allowed me to short sell an extra 1,000. This is great for extra personal cash.

So I put the game speed to Normal for an instant to drop the stock price, then pay off the short. I now have about $260k to my name. Buying up the remaining stock in the first company would cost me a little bit of cash (they were about $13 each IIRC). To get the best start for the next company it made sense to do that first.

So, start the second company and it offers me $780k of investor cash to go with my $260k. This means the company is about $50k ahead of the default start, and I own 25% immediately. Go with that, then go check bond offers. This time around it is offering the usual first bond at the usual 11%. Great. Company is slightly stronger, and bonds are normal.

Not only that, but I have enough purchasing power to buy another 3,000 shares with a little bit in reserve. So do that, and I'm up to 40% ownership now without being badly in debt. Buying the extra 3,000 has boosted stock price a bit, so now I do the two stock issues at game start and raise a bit more cash with them. Ownership is now 36% (ie: 8/22).

Now to clear up the dead company. I buy all the stock in that and then do a merger. Since that dead company never took out a bond and had a tiny bit of cash left, net cost of the merger to my company is roughly zero. Naturally, my personal cash goes up a bit and that gives me a bit more of a buffer to margin calls. Personal debt ends up at $180k.

This is a bit much to be totally stable with my initial wages. Jumping companies makes the board cut your wages for the first few years. You'll get the full $10k for Year 1, but it will be cut to $7k in Year 2 unless you manage to achieve truly spectacular results. So, set a dividend high enough to stabilise things. This turned out to be $1.30/share. Sounds like a lot, but in terms of cash it's only about $29k.

With the standard start you can begin with a maximum of around $1,575k: $990k initial company cash + $490k bond after fees + about $95k from two stock issues. Doing the two-company-shuffle means you start with $1,622k, or an extra $47k. The difference comes close to covering two years of dividends, and you own 36% of the company immediately instead of only owning the default 9%.
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Now this is all very groovy, but is arguably not much use in the Latvia scenario since it doesn't have a PNW goal. Where it could come in handy is in stabilising stock price. Stock issues are effectively unlimited in that scenario, and are obviously very useful for expansion, but too many of them can lead to dropping stock price. If you can start the game with a large percentage of ownership and minimal debt, that gives you some scope for using your buying power to stabilise stock price without crippling your company with high dividends.

It would also be handy if, for some reason, you wanted to have a second company running during the scenario. Starting with 36% of your main company means getting a majority should be easy, and that would be required if you wanted to be able to swap between the chairmanship of two companies during the game.
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Anyway, the real point here is the dramatic difference in results by just slightly changing the percentage of investor cash on the initial company.

With investor cash at the standard (for that scenario) 91% for the first company, the result of the two-company-shuffle is worse than just playing it straight. You'll own 25% of the second company, but the company will be useless.

With investor cash at 89% for the first company, which is the difference between you putting in 1/11 of the total and you putting in 1/9 of the total, suddenly there is a dramatic change. You get a slightly stronger second company and a large percentage of ownership.

Just to see what happened I tried a third test, where I put in 1/6 of the total for the first company. This was useless too. The second company was far too weak to make the dodge worthwhile. It looks like 1/9 is the sweet spot.

[Gumboots]

Tried something similar with the Southeast Australia scenario, just to see what would happen. This was also interesting in that the behaviour was completely different to the Latvia scenario.

In the Latvia scenario, by using the right tricks you can escalate your PNW and company cash to ludicrous levels at the start of the game. There doesn't appear to be any limit on how high you can go. This should apply to any scenario that allows stock buybacks.

The Southeast Australia scenario won't allow you to do this, because it doesn't let your company do stock buybacks. This means the only way of running down company cash is to repeatedly buy and sell industry, or simply build and bulldoze stations and track. Since this doesn't pump stock price, you can't make as much cash out of these tricks. The result is that it is only worth doing a couple of companies at the start of the game. These couple will give you a boost to PNW, but if you try to do more of them your cash will start decreasing rapidly. I expect this will apply to any scenario that does not allow stock buybacks.

[Gumboots]

While playing around with these ideas, just to see what is possible, I stumbled across a genuinely legit use of company-jumping.

I'd got myself a majority of my main company, but due to things being built it was temporarily short of cash. This was in the Southeast Australia scenario, so no bonds or stock issues were allowed. Anyway, a Textile Mill seeded in a lucrative spot and started making money almost immediately. When I spotted it, the price had already jumped from the default $750k to an even $800k, and was obviously going to increase pretty quickly. This would be a nice acquisition for my main company, but it was short by about $500k. No good.

However, I had stacks of purchasing power available, and purchasing power is the basis for starting extra companies. So I temporarily resigned from my main company (game on pause, of course) and started another company with $800k of my own input and zero from investors. I used this company to buy the Textile Mill, set dividends to the maximum allowed at the time, then went back to my main company and let the game run again.

By the end of that year the Textile Mill was running at full capacity and making good money, and stock price in the second company had naturally increased by about 25%, giving a merger price of just over $1 million at the lowest merger setting. There was $100k or so of company cash included in that price, which further reduced the effective merge cost. My main company had adequate funds now, so I went ahead and merged. This gave my main company a Textile Mill that was already running at full capacity, with no waiting for profits, for a price that was about $300k less than building one. That's a good deal for the company. And, because I had only put up $800k of my purchasing power and got paid $1 million for the merger, I made 25% ROI in personal cash over the course of the year.

So that's a legit, non-evil way to use temporary companies for the benefit of yourself and your main company.

[RulerofRails]

Interesting that this thread was made asking about Southeast Australia map in the first place, so it comes full circle. Unfortunately, Stoker's image hosting expired so some of the evidence (on first page of thread) of his high PNW in the first couple years is lost. His result was impressive. He was north of $10M for sure as can be seen by the text. My unreliable memory puts him above $20M? What do others remember?

[Gumboots]

I don't remember, but I'm sure it's possible. I knocked over that scenario in 1964 last night, with PNW up over $11 million.

[RulerofRails]

Yeah, it's not a difficult scenario. I just looked at its thread and my last post was one I made before I knew that we must reload from the Main Menu to get a "random" seed. Going to make an edit now.