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Insights from terminology: stocks, shares, bonds and securities

Human Values Stock Exchange: Investing in shares in a value market of fundamental principles (Part #7)

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In economic practice, stocks, shares and bonds are formalizations of notions of mutual confidence in the social construction of reality. With respect to human values, they are as fundamental as the process of "sharing" and the resultant pattern of "shares" -- recognized even by small children faced with the challenge of subdivision of resources (whether equitably or with "preferential" allocation of resources to older siblings or more respected "gang" members).

In this context, the analogue to the "stocks" typical of the economic market (especially the commodities market) is that of "setting stock by", namely by a valued standard of reference. With respect to "commodities", these might be understood in the sense of the set of things which are commodious or appropriate -- an old sense of "commodities". Again "bonds" outside the economic market reflect an understanding of a strong relationship, typical of kinship, team and tribal bonds -- and of elective affinities. A similar point could clearly be made with respect to "securities" (physical, affective, or otherwise) .

What is it then possible to learn about "investing" in human values, and from the process of sharing, given the understandings and distinctions made with regard to "financial instruments" and their distribution?

How do people "share" an investment in a value? Comments with respect to human values are given in italics.

  • Shares (Stocks): These are units of account, or equity ownership, with respect to various financial instruments including stocks, mutual funds, or limited partnerships. In the case of a company, a share is one of a finite number of equal portions in the capital of a company. The word stock may refer specifically to a bond (eg in the UK). It can also be used more widely to refer to all kinds of marketable securities. As noted above, people and groups may subscribe to human values but the only quantitative measure of their share would then be in terms of amounts of money allocated or number of petitioners.

    • Share issue: More generally, for a corporation, the stock is the capital raised by a corporation, through the issuance and distribution of shares. Group articulation and promotion of a declaration or manifesto, or even the formation of an organization or the publication of a periodical, may be considered to correspond to a "value issue" analogous to a "share issue". These are effectively all invitations to subscribe to the associated values.

    • Dividends: Shares entitle the owner to a proportion of distributed, non-reinvested profits, known as dividends, and to a portion of the value of the company in case of liquidation. As noted earlier, dividends are an indication of the sense of reward derived from subscribing to the values, whether in the short, medium or longer-term. It could possibly be understood as a form of "psychic interest" in the light of understandings of psychic income.

    A shareholder is then any person or organization which holds shares, or fractions of shares, of a corporation's stock. Those subscribing to a value, or set of values, may be described as value shareholders.

    There are several types of share:

    • Ordinary shares (Common stock): This is the most common form of share. Shares can be voting or non-voting, meaning they either do or do not carry the right to vote on the board of directors and corporate policy. Whether this right exists often affects the value of the share. Holders may receive dividends in line with the company's profitability and recommendation of its directors. In the case of human values, these could be considered as the ordinary subscribers to a value. As such they clearly have some right to speak to the value and in its name. They may receive some notional reward for doing so -- if only in the form of self-satisfaction. They may be rewarded to a greater degree if duly recognized by those claiming to manage relevant value funds. Examples include the recognition accorded by the Right Livelihood Foundation, and other such awards, notably those for outstanding performance or courage (as medals, for example).

    • Preference shares (Preferred stock): Although normally fixed-income shares, compared with common stock, these stocks enjoy a number of preferences, such as a higher dividend and preferential payment of dividends (before ordinary shareholders). In return, however, preferred stocks generally do not have voting rights at the Annual Shareholders' Meeting. They may have enhanced voting rights such as the ability to veto mergers or acquisitions or the right of first refusal when new shares are issued (i.e. the holder of the preferred stock can buy as much as they want before the stock is offered to others). In the case of human values, these may be associated with the exemplars of such a value. There is a process whereby those ordinary value shareholders who are widely recognized are then treated preferentially, if not deferentially, in relation to the values for which they are exemplars. Laureates of the Nobel Peace Prize are an example of those who effectively become the equivalent of preference shareholders.

    • Treasury stock: These are shares that have been bought back from the public. Such stock is considered issued but not outstanding. This suggests the existence of an interesting process in relation to values.

    • Multiple class: In this case there are several classes of shares (for example Class A, Class B, and Class C) each with its own advantages and disadvantages. This suggests the existence of an interesting equivalent in relation to values.

    The number of issued and outstanding shares for the specified security may be used in the calculation of index values. An equivalent is to be seen in the methods used in various value surveys.

  • Bonds (Bills or Notes): These are any interest bearing or discounted government or corporate securities that obligate the issuer to pay the bondholder a specified sum of money, usually at specific intervals, and to repay the principal amount of the loan at maturity. A bond is therefore a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon). A bond is just a loan, but in the form of a security, although terminology used is rather different. Bonds enable the issuer to finance long-term investments with external funds. From a human values perspective, given the special relation to government, the equivalent to a bond would seem to be intimately related to the values embodied in any social contract through which the integrity of the collectivity is defined.

    • Bond issue: They are issued by governments and companies as a means of raising capital. The issuer is equivalent to the borrower, the bond holder to the lender and the coupon to the interest. Governments can be understood to promulgate new values in seeking support and commitment from their populations. People may then respond by effectively lending such commitment for a period typically specified in the promise made by government at the time. This is most obvious in the case of the values associated with plans promoted by government for 5 or 10 years or more.

    • Interest: This generally entitles the holder to a fixed-rate of interest during the life of the bond and to repayment of the amount of the bond at maturity. In the value case, the bond holder may be said to benefit in a continuous manner throughout the life of the bond -- in the expectation of eventually recovering the investment. As noted above, criticism of "interest" by some religions and in the promotiojn of complementarty currencies may suggest richer and more sustainable possibilities.

    • Price: The market price of a bond depends on the coupon rate, the market interest rate and the number of years to maturity. Bond prices are inversely related to interest rates. The price of a value bond can be explored in the light of understandings of examples such as the price of friendship, the price of peace, the price of freedom, etc

    • Conditions: Other stipulations may also be attached to the bond issue, such as the obligation for the issuer to provide certain information to the bond holder, or limitations on the behaviour of the issuer. In the case of values, both parties may indeed impose conditions on any value bond. In some cultures, saving a life may create a special binding obligation on the person saved. The obligations associated with the Japanese concept of giri offers an interesting example.

    • Maturity period (or date): This is the life of a bond or security, namely the date on which the principal amount of a bond is to be paid in full. Bonds are generally issued for a fixed term (the maturity) longer than one year (whereas stocks may be outstanding indefinitely). A bond usually ranges from 5 to 15 years but a few government bonds may even have a lifespan of 25 to 50 years. Debt securities with a maturity shorter than one year are typically bills. Perpetual bonds (Perpetuities) have no maturity date, some are still traded having been issued in the 19th century. Some ultra long-term bonds will only mature in the 24th century with a principal currently valued near zero. The period of a value bond is most evident in interpersonal relationships, notably friendships or those partnerships with even greater commitment -- notably those involving membership in groups whose role takes precedence over that of government (eg secret societies). The commitment at marriage, for example, may be "until death do us part" (notably the commitment made by nuns in their "marriage" with Christ). Some bonds may even be understood to be "eternal". In some cultures, certain bonds may be understood to have been undertaken in previous incarnations -- or as having existed "forever". For the religious, the maturity of a bond with any form of deity may be associated with processes of reward associated with notions of heaven (eg "sitting on the right hand of God"). In a secular context, the maturity of value bonds associated with government commitment may be presented as closely related to notions of benefits for a person's "grandchildren", or "the next generation"

  • There are many kinds of bond:

    • Fixed rate bonds: These have a coupon that guarantees a fixed interest throughout the life of the bond. In the value case, this may perhaps best be understood in terms of the constancy of friendship or of the support offered by a community. In Japan, this is even clearer in the constant support offered by a corporate environment. A degree of equivalence in the West may be found in the possibly life-long support offered by an institutionalized environment (eg a government bureaucracy, academic tenure systems, or the military)

    • High yield bonds: These are bonds that are rated below investment-grade securities by the credit rating agencies. As these bonds are relatively risky, investors expect to earn a higher yield. They are considered to be "speculative" because the issuing company's ability to meet the debt obligations is less certain. These bonds are popularly known as junk bonds. Equivalents in the value case are to be found in relation to the bond created with those issuing any form of prediction or prophecy. This may range from the "high yield" offered by marginal or alternative political parties to the "end-times" scenarios offered by religious fundamentalists. They may include predictions offered by doom-mongers (peak oil, asteroids, etc), conspiracy theorists, or channellers. Although such bonds offer a higher "yield" in psychological benefit, the fact that the commitment to them may prove unfounded also leads to them being rated by the mainstream analysts as "speculative" and "junk".

    • Floating rate notes (FRN's): These bonds have a coupon that is linked to a money market index, such as LIBOR or EURIBOR. The coupon is then reset periodically, normally every three months. The money market, in the value case, may be understood as a measure of general confidence. Clearly there is a case for exploring the manner in which the psychic yield on certain types of bond may be periodically adjusted in relation to general levels of confidence rather than being independent of it.

    • Zero coupon bonds: These bonds do not pay any interest. They trade at a substantial discount from par value. The bond holder receives the full principal amount as well as value that has accrued on the redemption date. Such bonds may be created from fixed rate bonds by financial institutions by "stripping off" the coupons. In other words, the coupons are separated from the final principal payment of the bond and traded independently. In the value case many bonds may be of this form, postponing any reward in the light of a promise of a final recompense commensurate with the original value commitment, plus that for the intervening period. Parents may promote such value bonds. Notable examples are however those bonds promoted on the basis of spiritual values explicitly based on non-expectation of "earthly" rewards -- recompense being associated with the afterlife.

    • Inflation linked bonds: With these bonds, the principal amount is indexed to inflation. The interest rate is lower than for fixed rate bonds with a comparable maturity. However, as the principal amount grows, the payments increase with inflation. The UK was the first to issue inflation linked Gilts in the 1980s. Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the USA. In the value case, the bonds would bear some resemblance to the points made above with respect to floating rate notes.

    • Subordinated bonds: These bonds have a lower priority than other bonds of the issuer in case of liquidation. In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc. The first bond holders in line to be paid are those holding what is called senior bonds. After they have been paid, the subordinated bond holders are paid. As a result, the risk is higher. Therefore, subordinated bonds usually have a lower credit rating then senior bonds. The main examples of subordinated bonds can be found in bonds issued by banks, and asset-backed securities. The latter are often issued in tranches. The senior tranches get paid back first, the subordinated tranches later. This form of bond is particularly worth exploring in the value case in the event of any form of default in the light of any sense in which value bonds may have been prioritized -- or may need to be prioritized. Especially agonizing examples are provided in emergency situations in which a parent may have to choose which of two children to save -- some religions may prioritize an unborn child over the mother where only one can survive a problematic birth process. More generally this is related to the value challenges of any process of triage. Examples at a planetary level may be seen in choices effectively made between developing and industrialized countries, or between humans and other species.

    • Bearer bond: This is an official certificate issued without a named holder. In other words, the person who has the paper certificate can claim the value of the bond. Often they are registered by a number to prevent counterfeiting, but may be traded like cash. Bearer bonds are very risky because they can be lost or stolen. A value equivalent is an obligation to an unidentified party, perhaps most simply illustrated by a blind date.
  • Securities: A general term signifying an instrument of ownership position in a company (a share), a creditor relationship with a company or government body (a bond), or rights to ownership such as those represented by an option, subscription right or subscription warrant. Bonds and stocks are both securities, but the difference is that stock holders own a part of the issuing company (have an equity stake), whereas bond holders are in essence lenders to the issuer. Understood in this general sense, value securities essentially describe the pattern of value relationships in which a person or a group is embedded -- relationships which are effectively a source of security. Security in this sense may range from physical, through affective, mental, or spiritual forms. As such it may include cultural, philosophical and epistemological variants.

    • Gilt-edged securities (Gilts): Debt securities issued on behalf of a government. In a value sense, it is in these forms of security that the highest level of confidence are placed. They are values promulgated and sustained by a system of governance, whether this is associated with a country, a local authority, a religion, or some other authoritative body. It could be argued that the Universal Declaration of Human Rights (as managed by the UN) offers a selection of such core values (although omitting many that are promoted from a more transcendental governance perspective by religions, as presented in the Global Ethic). Interesting cases are provided by ideological movements and schools of thought (eg communism, capitalism, the military) especially when confidence in them is lost.

    • Asset-backed securities: These are bonds whose interest and principal payments are backed by underlying cash flows from other assets. Examples of asset-backed securities are mortgage-backed securities (MBS), collateralized mortgage obligations (CMO) and collateralized debt obligations (CDO).

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