If we avoid investing in companies like MSB because there is a chance of dilution, then we would miss out on the opportunity to buy shares at sub $2 and even close to $1, which would mean retail investors could miss out on 100%+ and 200%+ returns respectively. So would the retail investor mind if over time their share holding get s diluted if they can walk away with three or four digit % returns? I think not. In fact without these capital injections, MSB would be worth $0.
@stockrock,
Yes, that is true, but what you omit to mention is that dilution also means that investors do not always make 100%+ and 200%+ returns, too, but that they more often than not lose 40%, 50%, 60% of their capital, which has been the case here for many.
This is consistent with my long-made observations (which support the financial arithmetic) is that dilution through the issue of stock at discounts to the market tends to invariably result in lower - rather than higher - shareholder value.
But I understand - and respect - that some people might want to play against those odds, and are happy to invest in stocks that require external capital to fund their progress.
But personally, I - demonstrably - don't.
I guess that's the way markets work: people look for different things in their investments; each doing so legitimately in his or her mind.
"If MNK comes through with upfront cash, and/or another partner comes into play for CHF or RA ... how would they cover their 19 million shares?
The poor investor who gets diluted can only lose their capital, whereas the short seller has unlimited loss potential... UNLIMITED!"
Yes, indeed, short-selling is very dangerous which is why I - as someone with an aversion to investing in situations in which there exists a risk of permanent capital impairment - do not do so.
As to how shorts cover their positions in the event of a deal finally eventuating, I have no idea. Maybe they do nothing, or maybe they try to buy stock on-market. Who really knows?
But this serves to reinforce what I have always said about short-sellers: while they might be sellers at one stage, they ultimately become buyers at another stage.
So, I can't understand why people spend so much time worrying so much, or even thinking, about short-sellers, because short-sellers are just like any other market participants, except that the timing of what they do is - theoretically - out of phase with long-only investors (who dominate the market, anyway).
In many ways, I think short-sellers should be encouraged and celebrated, because their actions could deliver shares to investors at prices lower than might ordinarily have been the case.
For example, there were many people on this forum decrying short-sellers whose actions they believed had driven the stock price to multi-year lows at the end of last year. Well, what a tremendous buying opportunity that would have proven for those with the ability to take it, eh?
Of course, some short-sellers, instead of covering their short positions at the prospect of an imminent partnership, might adopt the view that there has been talk of partnerships being imminent for years, and yet none has materialised, so they might be happy to extrapolate the same outcome into the future and actually ADD to their existing short positions. (For - just someone who is a long-only investor likes to buy low, and sell high - shorters tend to like shorting high and covering low. So someone who was happy to short at, say $2.00, will -
ceteris paribus - might be even happier to short more at $3.00.)
Like I say, who knows what other market participants are doing at any given day/week/month?
Speaking of which, Silviu is obviously a large shareholder ... so these capital raising dilute his holdings too - so he wouldn't be going out and doing dud deals to his own detriment.
Hmmm, the NASDAQ deal didn't exactly cover MSB management in glory, did it?
(The investment bankers to the deal, on the other hand, they did just fine....)
And if and when MSB does become self-sustaining, rather than paying $1 or $2, the entry price is likely to be closer to $10+, or up to 1000% more. But hey, at least there won't be dilution then!
Exactly! Now you are getting it.
Just like many other self-sustaining companies that have ended up being excellent long-term investments, even if you bought them at prices 10 or 20 times higher - once they reach commercial self-sustainability (such as - to name just a few with which I have had this experience directly as an investor - AMC, ARB, ASW, AUB, ASX, AZJ, BRG, CBA, CSL, CTX, CYB, DLX, DTL, IFL, MND, MQG, NCK, NHF, RMD, RHC, REH, SHL, TCL, WES, WFD, WOW etc. etc.)
(The difference is that at $1.00 or $2.00, there is a risk of permanent capital impairment, but at the self-sustaining price of $10, those risks have dissipated.)
But, hey - as I say - each to his own in the investing game, right?
(20min delay)