Thursday, November 28, 2013

When the tide gets low ... Part 2

Market will readjust by itself, but many times over the short term it may act irrationally. When times are good, you will see companies issuing bonus shares, splitting, some exercises to make their companies become more attractive - however those exercises do not construe to any particular intrinsic value improvement.

I can talk about bonus shares, shares split but they are just an accounting exercise. Coincidentally, 2 companies that I have invested in Wellcall and Oldtown are succumbing to those - which leads to nothing much. Overall, the most basic thing is the valuation - PE ratio, cashflow and other more fundamental stuffs.

The most recent trick to make their shares even more attractive and yet very misleading is issuance of warrants but without anything else followed by it. During school days, I was taught or learned that warrants act as a sweetener in case the company is doing a rights for example. Issuing warrants here though without any other issuance to tag with (hence pure additional warrants shares) is just an exercise to make the owners rich and speculators seemingly stupid at following their game plan.

The last 2 times I saw that in Instacom and more recently EA Holdings issuing warrants without rights is displeasing. In fact, I feel that SC has to check on this and relook at this policies. Why do companies issue warrants only? Enrich themselves - the owners. There is no real benefit to the company and no real commitment from the largest shareholders. They do not want to commit to putting more monies into the company through rights if the company needs money. What they want is issue the new warrants - push up the shares. Step 2 - sell the warrants to some freshies (new players) whom are just happy to follow the trend.

Don't believe me? Look at Instacom's owners - how long since they issued the warrant to then dispose off those warrants.

EA Holdings is another. One can have a look at the share's trend.

I remember I did provide the warning signs 1-1/2 years ago. My fear during then on EAH was right smack accurate. Chances are the net effect would be more people will lose money if they are followers than those who gained from the speculation. You can see it through the company. But yet gambling is into many peoples blood. They don't do the check first, then invest.

Seriously, the way the market is being treated and approached, it is getting dangerous. Another example, Sumatec - a company which has nothing but a MOU with a vague oil and gas business proposition but yet may be worth close to RM1 billion is just insane!


K C said...

Wonderful article! Like!

goh said...

Well said and I really like the research u put in to tie down the message. Now it makes me wanna readvyournold posts prior to me discovering u a few months back. :)


Your views on EAH are in direct contradiction by another popular blogger, speaker and commentator on BfM,

felicity said...

Don't think I am a popular blogger as yet. But I seriously think that EAH or Instacom or Asia Media for that matter are just misleading investors in its accounts or some of its actions.

K C said...

Whenever anybody asks me to recommend a Bursa investment blog, I always recommend serious investing, where is Zee Moolah, Corporate Governance and the like. I would never never recommend momentum investing, buy high (and hope to) sell higher, a speculative endeavor, knowing very well where the odds are. Popularity is hazardous for investing.

Most people lose money not because they don't make money for certain stocks, but lost a bundle because of following the crowd and enduring high risk. Take care of the downside, the upside will come naturally.

Doing something different from the crowd is the way to earn some extra ordinary return from the market. But of course you must be right in your judgement in oppose to the popular believe.