Do LRS need to maintain an ASX300 entry status for a period of time before being added?There is no specific requirement for a company to maintain a certain status for a particular period of time before being added to the ASX 300. Inclusion in the index is primarily based on the company's market capitalization. If a company's market capitalization is among the top 300 on the ASX, it may be included in the index during the next rebalancing period.
Is it a simple case of once they meet the requirements a process automatically starts and we should see them pop up in x number of days/weeks?It's not an automatic process. The ASX 300 is reviewed quarterly—on the third Friday of March, June, September, and December. If a company meets the criteria for inclusion (primarily being among the top 300 companies by market capitalization), it can be added to the index at the next review date.
Is it some kind of periodic review that happens say monthly, quarterly etc?Yes, the ASX 300 is reviewed quarterly—on the third Friday of March, June, September, and December. Changes are effective from the next trading day after the review.
Any other considerations I may have missed?
One key factor is that for a company to be eligible for inclusion in the ASX 300, it must also satisfy other criteria, such as being listed on the ASX for a certain period of time, having sufficient liquidity, and meeting certain corporate governance standards.
When a company is included in a major index, it can indeed attract the attention of large institutional investors, such as mutual funds and hedge funds. While this can provide a boost to the company's stock price due to increased demand, it can also make the stock more susceptible to short selling, which can increase volatility.
Short selling is a strategy where an investor borrows shares of a stock from a lender (often a large institutional investor) and sells them on the open market with the intention of buying them back at a lower price in the future. If the stock's price does go down, the short seller can buy back the shares at the lower price, return them to the lender, and pocket the difference as profit.
However, if many short sellers target a particular stock, it can put downward pressure on the stock's price, potentially causing it to drop significantly. If this happens, it can create panic among other investors, leading them to sell their shares, which can drive the price down even further.
This is a risk that investors need to be aware of when investing in stocks that are included in major indices. It's also a good reminder of the importance of understanding the potential risks and rewards of any investment and making informed decisions based on a thorough analysis of the company and its prospects, rather than simply following the crowd.
Strong companies with clear profitability paths and healthy net present values (NPV) are often less susceptible to the negative effects of short selling. These companies tend to have solid business models, strong financials, and positive future prospects, which can provide a degree of protection against market volatility. I feel LRS falls well into this category as opposed to LKE, NVX, MNS (all which I held in the past).
However, it's important to note that no company is completely immune to short selling or market volatility. Even the most fundamentally sound companies can experience periods of price declines and increased volatility. The key is to have a long-term perspective and not to let short-term market fluctuations unduly influence your investment decisions.
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