Secondary offering

Q:

I read that Zoom Video Communications had a secondary offering. What does that mean? — T.R., Cedar Crest, N.M.

A:

It means Zoom sold more of its shares to raise money — in this case, about $2 billion. When a company debuts on the stock market, it usually has an “initial public offering” (IPO), selling shares to the public and collecting money from the sale. (The shares will then trade hands on the market, but the company doesn’t profit directly from that.) If the company later needs a cash boost, perhaps to grow faster, it has choices: It could sell off some assets, borrow money — or sell more shares of stock, via a “secondary offering.”

If a company’s shares have skyrocketed, as Zoom’s have, due to videoconferencing demand during the pandemic, it will collect a lot of money for each share.

The downside of offering new shares for sale is that doing so dilutes the value of existing shares. Imagine, for example, a company with 100 shares of stock outstanding. If you own 10 of them, you own 10 percent of the company. If it issues 20 more shares, though, your 10 shares will only be 1/12th of the company, or 8.3 percent.

Q:

What are the best books about Warren Buffett?

— P.L., Wilkes Barre, Pa.

A:

Try Roger Lowenstein’s “Buffett: The Making of an American Capitalist” (Random House, $20) for a great review of his personal and business history, along with his investment thinking. You can learn a lot through Buffett’s own words via Carol J. Loomis’ “Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2013” (Portfolio, $18) and Lawrence A. Cunningham’s “The Essays of Warren Buffett: Lessons for Corporate America” (Carolina Academic Press, $35).