Multiple company tricks.

[Gumboots]

Figured this is worth a thread.

Anyway, I started looking through the "RT3 Handbook: PDF" to see if there were any ideas I had missed. Found this (Page 142) which does not make sense to me.

Watch the stock of this promising AI company, buying up to 4,000 shares (at least 2,000 shares) when they are low priced - best if they are well below the company book value. Sell half of your shares right before their stock splits. Use the money to buy 2,000 more shares in the AI company after the split (build up your investment for the next split). Use the remaining money to buy shares in your own company.

I can see the sense of the overall strategy of buying and selling AI stock. It's the timing suggested here which doesn't make sense to me.

When stock splits, overall stock value increases. There is always a price jump associated with any stock split. This means any stock you hold will be worth more after the split than it was before the split. This in turn, seems to me to mean that if you are going to sell off half your AI stock, it would be more lucrative to sell just after the split so you get a higher price for what you sell.

The fact that prices for an individual share will halve after the split is not relevant. The value of all the stock you hold will still have increased, and therefore selling a given percentage of your holdings will earn you more if you wait until after the split.

Not only that, but the suggested way of doing things incurs another penalty: transaction fees. If you sell half your stock before the split there is a transaction fee associated with that transaction. If you then buy back in after the split there is another transaction fee associated with that transaction too. This means you pay two lots of fees, and you don't have to. If you leave selling your stock until after the split then all you have to do is sell the appropriate percentage, with one transaction. You don't need to buy back in, and you don't need to lose money by selling for a lower price before the split.

[Gumboots]

Just down the page there is this:

There are three reasons to starting a second company:

1. Territory Access
2. To boost your personal net worth (see Appendix Four on PNW)
3. To gain track or speed along track laying

These are all good reasons, but yesterday I figured out a fourth: creating a temporary company for the specific purpose of grabbing a new and profitable industry while its purchase price is still low, if your main company cannot afford it at the time.

Actual example went like this: I had a company that was doing well, but I had just spent most of the cash on rail and locomotives, leaving around $260k in the bank. A Textile Mill seeded next to a large source of cheap wool, and started making Clothing. The price immediately jumped from the seeded $750k to $800k. Obviously, this mill was worth buying before the price went higher, but I couldn't afford it.

This was in a scenario where issuing stock and taking out bonds was not allowed, so the usual ways of raising money were not available. However, I had enough purchasing power to start a second company, with $800k of my own input and zero investor cash. I did this immediately, and used that company to buy the Textile Mill. I then set the dividend to the maximum allowed and returned to my main company.

A few months later I checked on the second company again, and jacked up the dividend to take advantage of the company cash that was available by then. I then went back to my main company and played normally for the rest of the year. By late December it was clear that the second company was going to have a stock split. This would increase the merger price, which I didn't want, so given that my main company now had sufficient funds available it made sense to merge the second company in late December.

The merger price, with the slider set to the minimum (ie: actual current stock price) was $1,020k. If the new mill had not been bought, and had just been left to run at full production outside a company, the price in December would have been at least this high. Probably higher. Also, the merger included over $100k of company cash, so the effective merger price was under $900k. This was a good deal for my main company.

It also turned out to be a good deal for me personally, even though this wasn't the aim. Since I had put in $800k and got paid out for $1,020k, obviously I made a tidy $220k over the course of the year. That's 27.5% ROI, and it wasn't even an entire year, so it's good going. On top of that, I did receive some cash from dividends: around $60k IIRC.

Traded off against this, I had to pay extra interest on personal debt during the year. The $800k purchasing power I used for the second company was added to my personal debt, and interest on that is charged at the prime rate. Since it was a boom at the time, the prime rate was only 5% and my interest payments only came to a bit under $40k. This is a bit less than the dividends I received from that company, so I was still ahead and still making over 27% ROI. If the economy had been Normal, the extra interest on my personal debt would have been roughly equal to my income from dividends.

[Gumboots]

Hmm, found another part just down the page, which also doesn't make sense (page 146).

The first reason (territory access) is useful in scenarios in which access to a territory(ies) is denied to your company but available for other companies. And, you need territory access to complete a game goal or a special task. You create a secondary company to gain access to a territory and then merge the secondary company into your main company so you can have the access rights. It marries together with a PNW goal very nicely. If there is no PNW goal then let the secondary company go to ruin and then merge it into your main company. If your main company can buy access rights, it is cheaper for your main company to buy the territory rights rather than go through a merger.

This last sentence is not true, and is contradicted in the next paragraph. It is almost always cheaper to create a secondary company for territory access costs, as the handbook then proceeds to explain.

Here is how to start a second company for territory access rights (without a PNW goal):

Let's say it will cost a million bucks to buy the access rights to a territory. You start a new company and invest $100K of your purchasing power
with outside investors adding $600K (you must have over $600K invested in order to immediately take out a bond). This puts $700K in to your new company. You issue a bond for $490 and issue stock twice, adding more money. Your new company now has a cash account of about $1308K. You buy the territory rights for a million and then spend the remaining money on buying back stock (don't buy any track, stations or industry which adds worth to your company). You retake chairmanship of your main company, unpause the game and watch the share price fall in your secondary company to a $1/share. Pause the game again and immediately proceed with a merger offering $2/share. The territory access is now in the hands of your main company. Pay off the bond debt you just inherited from the secondary company. A million dollar access fee only cost your company $526K – what a bargain!

Ok, this will work as described, but it's not optimal. In fact it's far from optimal. How about a $3 million access fee only costing your company $300k or less? Wouldn't that be better? It's possible too.

At this stage we are talking about dirty tricks anyway, so you might as well go hard. How much investor cash you can get for any secondary company depends on several things, one of which is how long it has been since you last used a dirty trick. If you just trashed a company the previous year you may only be offered investor cash equal to 50% of what you put up in personal cash. In this situation you should NOT try to use such a company for territory access UNLESS you can raise an amount far in excess of the actual access cost (see explanation further down*) or unless you don't care about the effect on your PNW (it will be bad).

But first let's deal with a usual simple case, where you have been running your main company well for years and haven't used any dirty tricks for a long time. In this situation investors will usually be prepared to offer you a lot of cash. You should try playing with the sliders to maximise the ratio between investor cash and your own cash. You want to put in the absolute minimum of your own money, and you also want the total amount raised to be equal to or greater than the territory access cost. This is important, because you do not want to take out any bonds. You can issue stock in the second company, but there is no advantage in doing so. It is better to just raise the required amount from investors.

Why is it better? Because you are going to get out of this without taking a hit to your PNW. To do this, you want the stock price as high as possible, and that means you do not want to be issuing stock after the company is formed. That will only drop the stock price, which is not to your personal advantage. The reason for no bonds is to minimise the merger cost to your main company. Why take on $500k liability at 11% interest if you don't have to? Better to make investors wear that $500k and leave your main company in the clear.

As an example, let's say you get offered $2,250k of investor cash to match $750k of your own, and you want access to a $3 million territory. Take this deal. It's good. If you can get $2700k from investors for $300k of your own, even better. Either will end up giving you a PNW boost. So, you form the company and buy access to the territory. Company is now broke and has a credit rating of F. Immediately sell all your stock in the company. Don't wait. Do it right now. Now resign the chair and short sell as much stock as possible. Resume the chair of your main company and briefly un-pause the game before pausing it again. The stock price in the second company should crash to near zero. If it doesn't appear to have crashed quite enough (experience is a guide here) play the game normally for a bit while keeping an eye on the stock price.

As soon as you think it is as low as it will go, or near enough, immediately pay off your short sells (which will make you lotsa bucks) and then buy up all the stock in the company. It will probably only cost you $50-100k. You can now merge the company into your main company, setting the merger price slider wherever you like: higher if you want a slight PNW boost, lower if you want the minimum merger price to maximise CBV. Even with the slider set to the higher level it should still only cost your company a couple of hundred K for the merger, and you should get a PNW boost of several hundred.

*Ok, that's the simple case. Now for the more complex ones. Let's say you have been having fun with dirty tricks, and you can only get investors to offer you 50% of what you put up. If you put up $2 million of your own cash with $1 million investor cash, and then immediately sink the company with a $3 million access cost, you are going to lose on the deal. You are going to lose quite a lot. The merger will still be cheap for your main company, but your PNW will take a walloping. This is not good, and can lead to margin calls and all sorts of nastiness.

However, this ratio of your cash to investor cash can still work providing, and this is critical, you can raise a total amount that is vastly bigger than the amount needed for the territory access. The reason you will need a large excess is so that you can minimise your loss of PNW on the deal. If you can raise $6 million from $4 million of your own plus $2 million from investors, you have scope to purchase the territory access for $3 million while still having another $3 million for PNW-saving dirty tricks.

In this case, you would form the company and purchase the territory access, then you would use the remaining $3 million to buy back stock. Obviously, you want to hold onto all your stock while the buybacks are in progress, not selling them until the price has been jacked as high as possible. If all publicly available stock has been bought back and there is still company cash available, sell off chunks of your stock and have the company buy them back. Once all the company cash is gone, immediately sell all your stock and resign from the chair. Now short sell as much stock as you can, resume the chair of your main company, unpause the game to crash the stock price in the target company, buy up all its stock, and go ahead with the merger. Your company will still get it cheap, and you should be ok for PNW.

[Gumboots]

Might as well cover some other dirty tricks as well. This one is a partly a variation on number 2 from the Handbook's list:

2. To boost your personal net worth

However, it can also be a fifth reason to add to the list:

5. Increasing company cash at the very beginning of the game

If you are allowed to start multiple companies you can use this to increase the amount of cash your company has right at the start of the game. How much you can increase it depends on what restrictions, if any, the scenario author put in place. Note that this is dirty underhanded cheating, which can be seen as fun and educational at times, or can be seen as removing most of the challenge from the game. Take your pick. Anyway, it goes like this...

At game start you will be offered investor cash that is ten times your own cash. This is usually what you want to take for dirty tricks, but there are exceptions. The exceptions seem to happen when your personal cash in under $100k. In these cases money and stock is tight, and it is important that you are able to short sell some stock when trashing the first company. I found that with a possible option of $90k my cash vs $900k investor cash, it was best to only take $780k investor cash. It will work with up to $780k, but if I took more than that I could not short sell stock, which made the deal less profitable for me in terms of PNW. This is the important thing. The company is screwed anyway so actual company cash amount doesn't matter much. What matters is how much you can make out of it. If you make more PNW, you will be offered more investor cash the next time around.

Anyway, if you can buy back stock the process is simple. Do not take out any bonds. Do not issue any stock. Do not build our buy anything. Just hold onto all your stock, and simply buy back other stock until the company almost runs out of money. There will usually be a bit left over, that is not enough to buy stock with. You can use this up in several ways. Building and bulldozing a small station is one way. Or just a little bit of track. Just make sure to not leave anything you have built lying around. Always have enough cash to bulldoze anything you build. If you leave a few k in the bank it won't matter, but get it as close to zero as you can. This will help your profits, as even a bit of company cash will stop stock price dropping so much when you pull the pin. Now resign from the company, short sell as much stock as you can, and unpause the game briefly before pausing it again. Now settle your short sells and get your holdings back to zero (shorts show up as negative stock) to maximise your purchasing power for starting the next company.

For starting the second company you will be offered 3 times as much investor cash as whatever your purchasing power is. IOW, you will start the second company with 25% ownership. The resulting total amount of cash will also be a bit higher than was available to the first company. How far you take this process is entirely up to you. It can be escalated indefinitely, so it comes down to how much cash you want and how long you are prepared to screw around to get it. After several companies the proportion of investor cash will stabilise at 50% of what you offer, but even with this low amount it is still possible to increase your PNW by 30% every time you trash another company.

It is different if the scenario author has disallowed stock buybacks. In that case you can still get some benefit from trashing a couple of companies, but you can't keep doing it as long as you like. In this case you cannot pump the stock price with buybacks, so the benefits rapidly diminish. The usual ways of using up company cash are buying and selling industry, or building and bulldozing stuff. In some cases you may want to bulldoze an existing industry, if you can see an advantage in dropping your own industry there. For example, if you will be able to afford a Lumber Mill you may want to bulldoze an existing (overpriced) one so you can hijack its stock of Logs.

Anyway, it's basically the same deal. Hold onto your own stock, burn company cash down to near zero, resign, sell stock, short sell as much as you can, unpause game to crash stock price, pause again, settle short sells back to zero, then start the next company. Given that with these restrictions you will rapidly hit a useful limit of companies, you should make a save after each one so you can compare the results and choose the one you like best.
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Edit: One thing to be aware of when trying these stock market tricks. Do not get "clever" and try to use up company cash by double-tracking some of your main company's line. There are circumstances where this can work well, but boosting PNW and company cash at the start of the game is not one of those circumstances.

What happens is that although the track has been added to your line, and although your main company will incur no charges for this, the value of the double-tracking is still kept on the books of the second company. You can see this by checking its CBV in the ledger after you have done the double-tracking. Since it still has a substantial CBV, the stock price will not crash nearly as much even though the company is broke. This can make a huge difference to how much profit you can extract from the deal. It can mean the difference between getting richer and facing a margin call. It is essential to leave the target company with no assets.

[Wolverine@MSU]

When stock splits, overall stock value increases. There is always a price jump associated with any stock split. This means any stock you hold will be worth more after the split than it was before the split. This in turn, seems to me to mean that if you are going to sell off half your AI stock, it would be more lucrative to sell just after the split so you get a higher price for what you sell.

This isn't always true. I've had many cases where the stock split say 2-for-1 and the share price after the split was less than half of what it was before the split. At the end of the year, the share price is "adjusted" before the split action is (or isn't) taken. Manipulating the dividend payout at the end of December can influence the price adjustment. I've had cases where the share price was about $110 and if I bump up the dividend, the stock splits and the new share price might be say $58, but if I leave dividend at $0, the share price might drop to $98 and not split.

[Gumboots]

Read what you just wrote. If the stock does not split, the price does not jump. I was talking about the situation when the stock does split. In that case, there is always a price increase. If you get a case where the stock actually does split, but total stock value goes down, I'd be fascinated to see a screenshot.

I have never, ever, seen a case where the split goes ahead and the total stock value decreases. Not once. In my experience, it always goes up. It will only drop if the split does not go ahead.

That being said, you make a fair point about situations where a split is not certain. If stock price is $102 in late December a split may or may not happen, and you'd have to use your own judgement to take a bet on what would happen. In that case it may make sense to sell some stock at the pre-end-of-year peak price and buy back in January at a slightly lower price. Although you'd still have to take transaction fees into account and I haven't quantified those yet (does anyone know?).

OTOH, if stock price in late December is $112 then a split is pretty much bound to happen, in which case it would make more sense to hold your stock and sell some after the split.

[RulerofRails]

Wolverine is the master of the year end Correction tactics. He has paid close attention to what happens at EoY many times. I have tried his technique, but don't use it in normal games. But it's a real thing.

It's often true that when stock splits, share price rises, but it's not ALWAYS the case. Instead of trying to cover all possibilities, I'll give an example. When Book Value per share is higher than Share Price likely because revenue per share is pretty low. Economy has been depressed for awhile. Now it starts to improve. Share price jumps up near split range, but this company still doesn't have a great overall ROI to support these higher prices. The correction (no dividend) will take care of most of the reset, but even when a split occurs (driven more by rise in book value/up-swinging economy than profits) the correction may not take care of all the effects and in that case instead of a close net:net on Market Capitalization it's possible to see a small drop.

If you look at the pre-built AI companies on some maps, they start with high share prices. They can have share prices even up around $400, but if they are barely profitable or book a loss, they will have a split but obviously the net result is a loss of Market Cap.

And then I will mention the obvious that tricks such as buying/selling and "trading" stock take effort, and unless I had endless miles of time IRL I mainly stick to buy-and-hold. Those methods work for a small gain, but in the typical case I find most success chasing those untapped potentials.

If you want to check out maps with interesting PNW, the two that came to mind are LA and L.A. by Stoker and Hard at Work by Ken Lanthrip.

Quick mention on double tracking. I haven't "studied" this stuff, but there's an easy possibility. Take out a bond in each company before you raid it. After the raid just leave it to die. If it looks ugly just combine all into one at the end, and it should be liquidated quicker.

Ran another test with share prices inflated to $10M. Transaction fee is 2% for both buy/sell. Quite exact actually.
Example: Buying; resulting share price $10,035k; fee paid $201k.

[Gumboots]

Wolverine is the master of the year end Correction tactics. He has paid close attention to what happens at EoY many times. I have tried his technique, but don't use it in normal games. But it's a real thing.

It's often true that when stock splits, share price rises, but it's not ALWAYS the case. Instead of trying to cover all possibilities, I'll give an example. When Book Value per share is higher than Share Price likely because revenue per share is pretty low. Economy has been depressed for awhile. Now it starts to improve. Share price jumps up near split range, but this company still doesn't have a great overall ROI to support these higher prices. The correction (no dividend) will take care of most of the reset, but even when a split occurs (driven more by rise in book value/up-swinging economy than profits) the correction may not take care of all the effects and in that case instead of a close net:net on Market Capitalization it's possible to see a small drop.

If you look at the pre-built AI companies on some maps, they start with high share prices. They can have share prices even up around $400, but if they are barely profitable or book a loss, they will have a split but obviously the net result is a loss of Market Cap.

Ok. I'll take your word for it. But how much drop are we talking about? And how common is this situation? Admittedly I may have missed it by not paying close attention to every AI company's stock at every year end, but as I said this is an effect I have never seen.

Even with this being the case, there are still a lot of situations (most?) where overall stock value will increase when stock splits, and in those cases there would be no advantage in selling stock before the split.

Quick mention on double tracking. I haven't "studied" this stuff, but there's an easy possibility. Take out a bond in each company before you raid it. After the raid just leave it to die. If it looks ugly just combine all into one at the end, and it should be liquidated quicker.

That doesn't get around the main problem. The company will still have substantial book value, so stock price will not crash to near zero immediately. If you assume a fairly average case of a dead company that may have 40,000 shares, the price may only crash to the low 20's. That can mean a difference in your PNW of around -$900k. It gets worse though. If you want the dead company out of the way, so the AI can't be given magic money and do stupid things, you then have to buy a majority of the stock and that will further boost the price and increase the merger price. So the end result is that a/ you end up about $1 million or so down on PNW and b/ if you want to get the company out of the way your main company also has to pay a far higher merger price.

Ran another test with share prices inflated to $10M. Transaction fee is 2% for both buy/sell. Quite exact actually.
Example: Buying; resulting share price $10,035k; fee paid $201k.

Cool. Thanks. So that's easy to factor in to decisions. Given stock price for a 2:1 split will be in the $100-150 range you can assume transaction fees are worth $2-3 per share, and trade that off against likely gains or losses by selling early (bearing in mind that selling early may be enough, in marginal cases, to stop a split going ahead).

[RulerofRails]

True, a poor split isn't common, but mainly replying about bonds. These don't show up on CBV. A raided company with a bond out, if left with about 500k of cash will have a CBV of $0. How useful this might be depends on how this can tie in with your broader strategy. If I tried raiding companies I would take the bond out in each one. I'm sure I could find something creative to do with the cash. I might even want to use this extra finance in my "real" company to give it a boost (even though rates are high).

[Gumboots]

Ok, bonds don't show up on CBV, but if you want to merge the company you will still have to pay off that bond. On top of that, although the bond won't show up on CBV the track you build with it may. It is an asset on the ground. It will be listed under "track" in the ledger. Admittedly I have not yet tested this, but I'd be surprised if it didn't show up.

The cash from the bond will also show up in the ledger as company cash. This is an asset, even if CBV is technically zero. Again, I haven't tested the effect of this on crashing stock prices, but I'd be surprised if it had no effect. I was finding that surprisingly small amounts of remaining company cash made a significant difference to the profitability of trashing companies. Even $50 k left out of a $2 million or more company is enough to cut your profits significantly.

I don't like leaving trashed AI companies around. I've tried it, and they will always get magic AI cash after a couple of years and then start doing stupid things. They may eventually be liquidated, but in the meantime they're likely to be a nuisance, and even when they are liquidated the crud they leave behind is often useless anyway. This means I don't want the dud companies saddled with bonds. There's no advantage in it. If I want to make more money, and I'm already into trashing companies, I can simply trash more companies. In a normal situation where you are allowed to do stock buybacks, I can escalate PNW and therefore resulting company cash by 30% for each company I trash. That's 30% ROI about every 5 minutes, compounding for as long as I like. And that 30% is the worst case scenario, when you are doing a string of companies. If you leave some time between them you can easily do better than 30%. Why screw around with bonds on dead companies?

I'd use bonds on a company I was going to merge was if it was going to run for a while as a profitable company. In that situation it could make sense, but it's a different situation because obviously that is not a company you are going to trash. And in that situation I could use some of its cash to double track my own line, because that would reduce merger price to some extent and will be credited to my CBV after the merge, while giving me the traffic flow benefit of the double track in the meantime.

I can also see the sense of creating a company and taking out bonds, then immediately merging, purely to get total bonds in excess of $10 million. But as you say that will be an expensive way of getting finance. It may not be worth it most of the time. I would think it would probably be better to use that trick I used the other day: use the second company to buy a good industry while it's still cheap, then merge the company before stock price goes sky high and before the AI start getting inventive. That way you get a modest PNW boost and your company gets a good earner at a reasonable price, as long as you don't mind saving up for a while instead of taking out a bond at a very high interest rate.

Edit: Oh one other situation where it might be worthwhile. Say you use the second company to build a steel mill, but it takes a while to draw in coal and iron. That will drop the stock price while the mill is waiting, so a bond may be a useful thing there because you could still pick the mill up quite cheap if the stock price dropped enough.

But then there's another way of tackling that same situation. Say you haven't trashed a company for a while. In that case you will be offered a lot of investor cash, and you could effectively treat it much the same as a territory access cost. Only put in a small amount of your own cash, lots of investor cash, and no bond. Sell your stock while the price is still high, then short sell. Watch the price drop and settle the shorts at the bottom of the drop. Buy back in to a majority position when you need to merge. Cheap steel mill for your company, no bonds to pay off, and break even or better on PNW if you do it right.

[Gumboots]

Had an idea. It would be possible to code various incentives to not go overboard on company trashing, without prohibiting it entirely. Examples, off the top of my head, without a lot of thought going into it...

0/ At the start of the game, set a given variable (not a company variable) to -4.

1/ Add 4 to that variable every time a company is started.

2/ Then have an event that subtracts 1 from that variable every year.

3/ This can then tie in with another event, that checks the variable whenever you start a new company. If the variable is > 0, some form of penalty could be applied (credit rating, prime rate, recession, whatever).

4/ For added fun and games, make the event in 2/ do a random subtraction, anywhere between 0 and 4, every year. That way you would never know if you were going to get a penalty or not.

5/ You could even script it so that the penalty was tied to the variable value. Say +2% prime rate for 1, -1 credit rating for 2, recession for 3, depression for 4, etc.