As an investor, you are buying ownership into a company and the rules are relatively simple – upon owning shares you can vote at the AGM, if the company makes a profit as a shareholder you can be paid dividends, but if the company does not do well, as a shareholder the debt is paid off first, then preferred shareholders and finally your shareholding. In the process there would likely be a vote to inform you of how much you are getting per share. The rules of ownership are defined and that helps ensures a steady stream of investors into buying shares. Have you ever thought about how ownership works in other areas of your life?

In a book called Mine! – How the Hidden Rules of Ownership Control Our Lives by Michael Heller and James Salzman, published by Doubleday, NY, 2021, the authors who are professors of law wrote about how ownership works. The reason you need to know or want to know about ownership is the rules change which creates winners and losers and there are always competing claims to scarce resources.

The book has 6 chapters and depending on the types of stocks you own, some would be more interesting to you than others for there is ownership in all aspects of our lives including many commercial transactions.

One of the chapters is called First Come, Last Served because in many areas of life there are scarce resources. For example, millions of people go to a Disney Park every year, if you never been it is worth it. One of the aspects of going to a popular park is lineups. If you are in line, you are not on a ride. Disney has experimented what to do about lineups and has a solution. For extra money you can pick a fast pass for 5 rides or you do not have to wait in line. The advantage for the consumer is for some rides no lineups; the advantage for Disney is happy customers who tend to stay in the park longer and by staying in the park longer, there is extra spending on convivence items.

Another chapter is titled I Reap what You Sow. This chapter discusses ownership is a social engineering choice, a conclusion we come to, not a fact we find. First we decide the goals we want ownership to achieve. Next we decide what means will most likely get us there. Fincally we affix the legal term owner to the sum of this hidden value judgements and empirical guesses. Ownership is the endpoint, not the start of the analysis.

An example of the above is the Homestead Act. The government wanted to settle the land west of the Mississippi quickly, visibly and at a low cost. The solution was to give land of 160 acres of public land to any adult citizen who live on and improved it by clearing fields, building a dwelling, and cultivating the land for 5 years. Roughly 270 million acres or 10% of the American west was transferred from the public to private domain through homesteading.

The General Mining Act of 1872 worked in a similar way. It allowed citizens and companies to stake claims on public lands. Prospectors needed to search for valuable minerals, prove a discovery, and put in at least $100 worth of labor or improvements annually. If they did, they owned the minerals below and sometimes the surface land above. Mining companies today mine those claims and pay almost nothing in taxes.

Another chapter is My Home is Not My Castle. When you buy property, you are essentially buying an attachment or the surface property. You do not own up to the sky or the minerals underneath and for the most part it did not matter. The boundaries of attachment are constantly changing – can a drone fly over your property? if a treasure was found on your property is it yours? if you have solar power, how high can the neighbor’s trees be? how much water can you take from the water source? In the later segments, often the rules come when the resources are in abundance so everyone can have what they want. When the resources become scarce, what to do?

One of the reasons why the oil industry does not have the conflicts water does is they use the principle of unitization, a new form of oil and gas ownership designed to collect together overly fragmented interests. In short the unit operates the field to create the biggest possible pie for owners to split.

It is noted, Texas does not require compulsory unitization- so they are mointored by the Texas Railroad Commission. The commission sets proration rules or production caps for individual owners each month and it enforces well-spacing rules.

In a chapter called the Meek Shall Inherit Very Little, after the Civil War, General Sherman promised freed slaves 40 acres and a mule. By 1920 almost a million Black farmers owned farms they have bought and this help the economy. In 2020, black farmers own fewer than 19,000 farms a drop of 98%. There are many reasons but obscure family ownership rules played a rule. One example is a farm through multiple generations was owned by a lady and 66 other family members. The lady with the largest portion wanted to sell 50% so she would own the farm free and clear. The court agreed but not by dividing the land by the judge ordered the entire lands to be sold and divided among the heirs. On the day of the sale, a lumber company made a low-ball cash bid for the rules say the bill must be essentially all cash. The heirs did not have the money to up the cash bid, but had valued the farm higher. The farm was sold to the lumber company. The family received cash but not enough to buy a new farm. For the courts, administratively money is easier to split.

One of the issues in the above is many Black families have no wills and because they have no wills the property is split among the remaining hiers, but to operate a farm decision are needed to be made with unanimous consent. An interesting fact is there are more land in Mississippi is owned by black people living in Chicago than by those living in Mississippi.

Another story is about South Dakota. In the late 1970’s, Citibank as losing money on its credit card division because of the low interest rates it could charge. The Governor made a deal with Citibank, come to the state and bring the 400 jobs and you can charge whatever you want. Citibank came and so did every other national credit card company. If you see a different address, the state has matched South Dakota.

The Governor of South Dakota wanted to help wealthy people turn their assets to the next generation with no tax. The Governor has the rules against perpetuities for assets nominally held in South Dakota trusts. Over the years it gave the wealthy whatever they wanted in terms of banking secrecy and avoiding inheritance taxes. South Dakota trust companies went from $60 billion in assets to $350 billion and competes very well against Switzerland and the Cayman Islands.

There are many other stories in the book and what is important is ownership can and does change from what you think it means to something else.

Linking to dividend paying stocks, all companies are founded on a rules they have ownership of a good or service and make margins to pay profits and eventually dividends. The rules evolve over the years which is why as an investor you will like the status quo, it benefits you. When there are changes as society changes, some you will like, some you will not and some will affect your interests and maybe your dividends.

There are more questions than answers, till the next time – to raising questions.