In the cascade, value is created from below. The common stock, subordinated as this is to the preferred, will make the preferred rise as common gains in value. The cause is not that prefs surpass their baseline preference or the value that was set by the investment, but that the common down below expands to make it so.
The value that’s created there is in the asset, made by execution. The other value element of enterprise, its optionality, is all in the beholder’s eye, and anyway once that takes form it isn’t option value anymore but an addition to the business – the asset of which consequently grows.
Solid and consistent execution is the hardest of all things in a team context… combining, as a group, energy and inspiration, organization, diligence, persistence, communication, obviously skill… but more than skill alone… a way to fit the unique skills of individuals into a cohesive blend that’s rhythmic and harmonious, even if the movement appears scattered.
And even then, with all conditions met, resources may not be enough, and circumstances change, unplanned and unexpected… the competitive environment, economy, customer delays or new requirements, defections or new roles that may need filling… it’s a turbulent affair, which, when successful, makes or adds to or perfects the asset. It is a thing of beauty.
As in sports, this is a win, and it needs to be repeated and continuous, the sequence incrementally more challenging with added size and expectations and the progress of the seasons. At the common stock level, down where the players live below, the exercise is one of chemistry. In the sports analogy this is akin to basketball, which is akin to music, and which the best teams will have mastered.
For the preferred that is above, and with diversified portfolios and glimpses of each business from the top, the game might sometimes seem more as in Moneyball, which is to say, statistical analysis. It’s a game of hits, they say, referring to baseball batting averages.
Perhaps the best, those with consistently superior returns, or, if you will, the best performance at the plate, have an innate understanding of the game’s dynamic – the real game – mindful of the role they play around the team, the differences between assists and interference, between a steady hand that makes all players better and the barbell of neglect and dominance.
In the end, the players win the games, and when they do, the value of the enterprise increases, for the glory of the coach whose star will rise, up above the common layer.