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"If the Bank runs out of money, it may issue as much Money of its own as it may need by merely writing on any ordinary paper" The Rules of Monopoly, Parker Brothers, Inc. (quote borrowed from The Funny Money Game by Andrew Tobias)

The Funny Money Game

by Andrew Tobias

Copyrighted in 1970, The Funny Money Game by Andrew Tobias is ancient history by business book standards. So, why are we reviewing it today?

Because much of what occurs in business and investing occurs over and over. What is happening today often mimics what has happened before in modified form. And, what is happening today will be a guide for the future. Again, in modified form, of course. It's one of those "Learn from history or be condemned to repeat it" thingies.

The Funny Money Game recounts Andrew Tobias's personal experience as the 22-year old marketing Vice President of National Student Marketing Corporation (NSMC), a high-flying, start-up company promoting itself as a savvy marketer to the youth (high school and college) market.

The grade school market was wisely abandoned when it was realized that advertisements on grade-school busses suffered from two serious problems. One, many grade-schoolers couldn't read. And, two, grade-schoolers didn't have much disposable income. But, based upon what Tobias writes, ads on grade-school busses may have been one of NSMC's better marketing ideas!

The company would grow and grow and grow at 300% a year.

At least that was the story Wall Street Analysts were told to help sustain the growth valuation of 100 times earnings on the stock in this newly public company. By today's standards, having net earnings for a new un-established growth company is rather respectable!

NSMC was able to grow its earnings by using its own high-valued stock to buy other companies, whose earnings were then lumped into reported NSMC earnings. As Tobias writes, "I learned that high-multiple stock used to purchase other companies or raise capital was called 'funny money.' "

Because NSMC purchased the acquired companies at lower price-to-earnings multiples than NSMC stock, NSMC earnings per share increased more than the effective dilution of stock that also resulted.

NSMC acquired many companies, claiming that these companies benefited from "synergy," and also claiming that NSMC's superior understanding of the college and youth market would lead to turning these more mundane companies into explosive growth companies.

In some cases, Tobias writes, synergy was a real possibility. For example, NSMC's purchase of two competing high-school-student-mailing-list companies not only eliminated duplicate effort, but would also eliminate the unprofitable price competition between the companies. Owning both, NSMC could hold prices firm. One company owning both had more value than each company competing alone. 1+1=3 synergy.

Many other acquisitions made far less sense. Tobias liked one project where small, noisy refrigerators, using minimal electric current, were to be installed in college dorms. He liked the project so much that as NSMC headed toward bankruptcy, Tobias attempted to borrow money to buy this division from NSMC. Tobias didn't get the money. Instead He went back to Harvard to complete his MBA.

Tobias recalls thinking it was unreal as he watched the value of his company stock options increase in value to $400,000. (Remember, this was in the late 1960's.) Many were able to cash their employee stock options or sell their shares in NSMC and walk away rich. But, the 97% correction in NSMC's shares occurred before Tobias could cash his employee stock options, and Tobias resigned from the company.

Tobias had not made his fortune in the student-marketing growth area, but he learned a lot about certain start-up companies, Wall Street, and the discrepancy between what is reported and what actually is happening within some new start-up companies.

The Funny Money Game is available through most libraries and is a relatively quick read of Tobias's personal financial and business adventure. It is good reading for anyone considering going to work for a new public start-up or anyone thinking of investing in such a company.

Tobias concludes, on the larger economic implications of all this, "Only with a truly remarkable discovery--a tremendous oil field, the telephone, the laser--does it make economic sense for people to make a fortune overnight."

And, so, Tobias counsels investors, "By coming to expect less we may get more." As an investor he'd rather put his capital on the growth of the larger economy than bet upon a new glamour high-flying, start-up stock.


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