Second Life Investing Theory

When evaluating a company in Second Life an investor needs to forget almost all of the information they have learned in the real world. In real life investing, owning a stock in a company is a small percentage of legal ownership of that company. If liquidation were to take place then the investors would be reimbursed after debts had been paid off. In real life, companies should not and for the most part do not pay out a dividend unless they are beyond financially stable enough to do so.

The problem with these ideas as they apply to Second Life is that it is impossible to force an individual to pay the L$s out as a liquidation value. In real life there would be a court order followed by legal proceedings to transfer the asset value to the investors if a CEO or corporation were to try and run off with company funds. There is no way to accomplish this, effectively, in Second Life. This means assets have almost no value at all when considering investing in a Second Life Company. The only reason I see  you would invest in a Second Life company based on asset evaluation is one would expect a company with more assets to theoretically be able to use those assets to turn out a higher gross income. Even if the profit margin on the company is small, due to the oversized amount of assets the company retains it should have no problems delivering high income numbers. However this is hardly the case and assets as a conversion-to-income evaluations are impossible to read accurately in SL. In theory, land companies should perform the best in Second Life, they have the highest level of assets (when reading them as L$s not quantity). But the current land market in Second Life is atrocious. A great company like ZEN that has been around since before SLCapEx was even SLCapEx, has an ace management team, and a great reputation in Second Life. Has a very rough time turning a profit because of the enormous overhead they must pay to Linden Labs. I concede that with all of the recent transitions and lack of financial reporting over the last year I do not know which company types will actually perform well.

I do know however, that when I choose a company to invest “long term”¹ I will be basing my decision on stock price, dividend payments, and consistency of dividend payments. Because the money received from a dividend is the only realistic way to expect a return on investment in the SL scene. I do not believe that a company should harm its ability to generate income to pay a dividend, and there is something to be said about a company that retains all earnings to reinvest in the company to help it grow. But given the short term nature of SL investing, I look for a company that has enough income to pay its bills, reinvest income, and if it is not already paying dividends, is expect to in the near future (such is the case with ICE)

1. Long term is defined as a company I have no intentions of day trading or selling off soon unless it sees a huge run up in stock price.