do we have a fair market for our stock ?, page-29

Thanks for all the comments. For those who rightly asked the question "but what can be done" I won’t just leave you hanging.

Firstly let me say that I didn't write these posts just for a whinge. I'm not upset or angry as some may assume but I do think there is something wrong that needs to be addressed before we let it get much worse. If I didn't think that anything could be done about it then I wouldn't waste my time mentioning it.

I believe that the first step in solving any problem is recognising that there is one. Conversations such as this are important first steps. Its about awareness and an opportunity for investors to decide for themselves if they agree with what is happening, and the realisation that we are not alone in asking these questions.

Secondly, while there is nothing wrong with the usual tactics of complaining to the ASX, ASIC etc, we all know that the transactional revenue that such trading produces for the exchange means that some parties have conflicting interests and will likely struggle to find sufficient motivation to question these market participants for fear of loss of revenue and their all important bottom line. A different approach is surely required.

Lets consider how the market works and more importantly why the markets exist. Exploring this may provide some insights into the genuine pressure points which can influence how things work.

At a fundamental level companies issue shares to investors in order that the company can access the capital that they require to setup and operate their businesses. Stock exchanges are a mechanism setup as a courtesy to investors in order to allow them to buy shares or sell their existing shares. Without a market in which to buy or sell, liquidity of stocks would be extremely limited and thus few investors would be willing to put money into stocks for fear that they have no easy way to liquidate it later should they need to.

Given that the fundamental purpose of a stock market revolves around the needs of companies and investors, it’s easy to see where the true power lies, even if acting as individuals these participants don't actually know it.

As we (the investors) own the companies it seems to me that if the investors made management of our companies aware of investor dissatisfaction with algo trading and the various forms of perceived market manipulation then we have a means of making our point. As individual investors we are bound to be ignored by the regulators. I’m sure they get hundreds of complaints a day and they surely can’t deal with all of them. No doubt some sort of prioritisation takes place. I hazard to say that a letter of concern for a public company would be taken a little more seriously than one from you or I. Letters from a number of small companies expressing the same concerns should not only avoid the risk of it being dismissed as anomalous but also ensure a greater degree of urgency.

The relationship between public companies and their retail investors is a symbiotic one. This is particularly the case with small cap companies where institutional investors are largely absent from the register. Boards of small caps know that the company would not exist in most cases if it were not for the support of retail investors. Likewise retail investors know that their best chance of growing their asset value is to help the small cap company become larger. Large companies invariably start small and grow. Without retail investors to support this spawning process how many of our companies would ever have made it too where they are, save large scale govt privatisations and demutualisations.

Public companies have no more love of the trader tactics than the rest of us. The trader is not the provider of funds to the company. The trader cannot be relied upon to cough up cash for capital raisings. The trader isn’t interested in the long term success of the company. To most small companies the trader just creates volatility and uncertainty which just makes the job of growing a small cap that much harder. If there is a party who understands the pain inflicted by certain trading practices surely it’s the small cap companies themselves.

It seems to me that if instead of complaining to ASIC directly, shareholders may be better off seeking to have a body with a louder voice to champion their cause on behalf of all investors. As part owners of small caps which regularly appear to be the target of questionable trading practices, if investors were to request that the boards of these companies lobby ASIC and the exchange directly then I have little doubt that the message would be heard. This needs to be firmly put on the agenda of our companies and it needs to stay on that agenda rather than being cast to one side as an issue between retail investors and institutions. Small cap companies need to make it clear that as they are majority owned by retail investors they expect that the trading of their securities is not only within the law but also seen to be fair and free of manipulation.

SSN is one very common example of perceived manipulation. I suspect there are dozens if not hundreds of others on the ASX alone. Action is actually relatively easy to take, particularly now that we are in AGM season. Shareholders attending AGMs for a company that appears to be a regularly victim of such trading practices could raise the question as to what the board is doing to protect their retail investors during question time. For shareholders that are at the AGM anyway it takes nothing more than to just stick up your hand and ask. For the majority that can’t or don’t go to the AGMs then you can email the company secretary and ask the very same question.

It’s all about having the issue put on the agenda in forums where it can be useful. We might not have sufficient clout as individuals to get the regulators to take notice but if we put it on the agenda of our companies then they can put it firmly on the agenda for the regulator if enough companies are encouraged to treat it as an issue. Investors have leverage but need to use it wisely. They can express their concerns and made their expectations clear so it’s constructive and the expected outcome is obvious. Most importantly, spread the love across any and all public companies where such practices are apparent.

For those that want a fair market some simple actions can make a real difference. Inaction guarantees the status quo which I suspect is in part why we are now in the position that we are in. The genie is now out of the bottle and we can no longer claim ignorance. The future is our responsibility and in part our actions or lack thereof will help to guide it. I am not here to tell anybody what to think or what to do. I am here however to share my thoughts, opinions and ideas. Make of them what you will because “It’s all good”, or so I'm told !


PS. With Doc’s picture and NetStocking’s narrative, the discussion is summed up nicely. Just wish I could articulate my thoughts as concisely as those contributions. Fantastic guys, thanks.