Thursday, February 16, 2017

Winning the game at the expense of others

In investment, if we pick the right, well managed companies, we can take a ride for long period with the company although our picking point was not at the right optimal level. Usually, if anyone is buying a business, we do not expect (but yes we hope we do), we are going to have an immediate gain, and a month later we sell that business. That in a way is speculation. In speculation, it is often a zero sum game where we hope that we have gone in at the optimal price point, while others would pick our crumbs along the way when we sell.

A zero sum game is when we win, another person will lose. Almost all the people that invests hope that it is a positive sum game. That is if I win, our fellow investors will win as well. The business turns out to be getting stronger and stronger and eventually dish out strong consistent dividends. That has always been the hope of a long term investor. However, if one is to decide to pour part of their savings into Magnum, Berjaya Toto (not the stocks but the tickets) then it would be really a negative sum game.

Over the last 2 years in Malaysia, I noticed an alarming state. There are just too many whom have introduced stocks at a seemingly low price, picked them up and call for a short term gain (by asking other people to buy). There will be a group of people whom will just follow. This is what I called - a hit and run and where they will never come back anymore. The ones that picked up the crumbs will often lose to the ones that call for the stocks in the first place.

In theory buying underpriced stocks is definitely not a wrong doing but the way it is done is really not right. Calling it, when other people were still buying for that person to sell is really irresponsible but unfortunately it is vastly happening.

So how do we avoid that from happening. We can't. In most likelihood, it is the role of the other investors themselves to weed those irresponsible(s) out. The best way is to really test out their facts and understanding of the matter. As an example, if one is to say the below for example, you know there is really something wrong in the person who says it:

"Actually, many people do not understand what is Share Premium Account and it's intended use. And because of this, many retailer miss out on potential corporate exercise that can benefit them.

So, how does this share premium account appear? Let me give you an example. Let's say the company Par Value is RM 0.50, but the company do a private placement at RM 1.00, so there is a Premium of RM 0.50. That RM 0.50 will then be stored inside the share premium account, and it cannot be simply used for normal operation such as company operation. The money here can only be utilized for corporate exercise such as Bonus Issue. When the company do bonus issue, it will then capitalized the money in the share premium account into share capital, and can utilize them for company day to day operation."

I am perplexed when someone can get away with totally wrong facts, and there will just be people who follow.

In today's world there are so many reliable sites where we can check the facts - and for those who really want to get tips, please really check and recheck them. Your money is your responsibility!

12 comments:

Anonymous said...

LOL and I know which blog you're referring to. I had the same question myself as well

Anonymous said...

KSL... :)

Ah Huat said...

That's why some people can "huat" at the expense of the ignorant. And they are happy to do it again, and again.

panaceaasia said...

OMG. Which blog please?

Anonymous said...

Goggle and see what share premium means and I found what was written is true. That's is used for bonus issues.

felicity said...

Perhaps I should explain in my earlier article.
Share premium account is an accounting entry. Assuming Company A issue new shares at RM2.00 per share for 100,000 shares. The par value of Company A is RM1.00, hence the accounting entry is as follows:

Dr Bank RM200,000
Cr Share Capital RM100,000
Cr Share Premium Account RM100,000

There is no restriction in using the cash in the bank.

What the statement mentioned is wrong i.e. they need to have bonus issue to be able to use the cash as when in the first place Company A which has issued new shares will be able to use all the RM200,000 that it has raised.

What does Bonus Issue impact then? just an accounting entry. Assuming as below the same company which has the following in its Balance Sheet.

Share Capital Par Value RM1.00 Total Shares Issued 1,000,000 RM1,000,000
Share Premium RM800,000

Assuming Company A announced a share bonus 1 for 2, hence the accounting entry which would be entirely in the Share Equity side is as follows:

Share Capital Par Value RM1.00 Total Shares Issued 1,500,000 RM1,500,000
Share Premium RM300,000

If you would have checked, the new Companies Act 2016 has altogether eliminated par value for Share Capital, hence in future there would not need to have Bonus Issue anymore.
PLease see below:

http://www.zicolaw.com/migration-to-no-par-value-regime/

Multi Bagger said...

Luckily we still have responsible bloggers such as yourself and many others to provide good investment guidance..

九剑 said...

nice

vijita mah said...

"What the statement mentioned is wrong i.e. they need to have bonus issue to be able to use the cash as when in the first place Company A which has issued new shares will be able to use all the RM200,000 that it has raised."


This is totally spot on, Felicity! the first time i read the misleading statement from the particular blogger, i got confused as well and thought if i understood it wrongly..thanks much for reaffirming my understanding.

Grateful to have people like you around. Don't stop blogging! Cheers!

Anonymous said...

Hi,
Do u intend to complain to SC?

felicity said...

No. I think SC will know who to follow.

Anonymous said...

Sorry felicity, i think part of the reasons you write is because you want to share. You want to benefit the public, warn the public.

I have traffic light contact number stored in my phone. Whenever i see if spoil, i call.

Sometimes authorities only act swiftly after at least few complaints.

Although it is their decision to buy or sell, public need protection.

If food industry is not regulated, i guess we will be eating poison now. Same thing, the decision to buy the food is the buyer, but the buyer is not mature enough to make wise decision.

Public need protection.

I hope you can consider because i see most people are blinded, even they lose money also they still treat him as king. You are different, mature.

Maybe no one appreciate your work, many may even curse you. But as long as we do the right thing, we are clear.

Thanks Felicity.