Can someone explain this excerpt from William Bernstein's article "The $100 Billion Oxymoron":

But don't feel too sorry for issuing corporations, they are past-masters at cranking out expensive shares when the markets are frothy (not only as initial offerings, but also as seasoned ones) and issuing debt when markets are cheap. In fact, if you've ever wondered just who is taking the opposite side of the average mutual fund investor on the wrong end of the dollar-weighted/time-weighted gap, the answer seems to be corporate CFOs.


  • "[...] issuing debt when markets are cheap"; What does it mean for a company to "issue debt"? This makes sense when the corporation is, say, a bank, but what does this mean for "non-banking" corporations (e.g., Facebook)?
  • "[...] who is taking the opposite side of the average mutual fund investor on the wrong end of the dollar-weighted/time-weighted gap"; Is Bernstein, here, saying that mutual fund investors who attempt to "time the market" suffer loss at the hands of corporate CFOs who create and offer/sell shares of their company's stock when the market is currently "overpricing" that stock?

1 Answer 1


crank out expensive shares when markets are frothy

Corporations go public (sell their shares for the first time) in market conditions that have a lot of liquidity (a lot of people buying shares) and when they have to make the fewest concessions to appease an investing public. When people are greedy and looking to make money without using too much due diligence. Think Netscape's IPO in 1995 or Snapchat's IPO in 2017.

They also issue more shares after already being public in similar circumstances. Think Tesla's 1 billion dollar dilution in 2017.

Dilution results in the 1 share owning less of the company. So in a less euphoric investing environment, share prices go down in response to dilution. See Viggle's stock for an example, if you can find a chart.

issue debt

Non-financial companies create bonds and sell bonds. Why is that surprising to you? Cash is cash. This is called corporate bonds or corporate debt. You can buy Apple bonds right now if you want from the same brokers that let you buy stocks.

mutual fund investor

Bernstein is making a cynical assessment of the markets which carries a lot of truth. Dumping shares on your mom's 401k is a running gag amongst some financial professionals. Basically mutual fund investors are typically the least well researched or most gullible market participants to sell to, influenced by brand name more than company fundamentals, who will balk at the concept of reading a prospectus. Financial professionals and CFOs have more information than their investors and can gain extended advantages because of this.

Just take the emotions out of it and make objective assessments.

  • Why would creation of additional shares of stock have any effect whatsoever over the valuation of the company? The market capitalization ought to be unchanged (while the price per share should, presumably, decrease due to "dilution"). Are buyers just that stupid? May 24, 2018 at 8:14
  • @pgayed I dont think I said it would have an effect on the valuation of the company. Yes market capitalization should be unchanged and each share now worth less, like I said. There are times when the investors are so pleased with the company's improved near term capital position that they value shares higher anyway, again see Tesla.
    – CQM
    May 28, 2018 at 20:29
  • @pgayed When markets are greedy it means they're overvaluing things. They want to pay more for a share than the share is "actually worth" Feb 2, 2021 at 16:18

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