free float

There's been a lot of talk about the free float dwindling as Rio/Polo/Kalahari acquire shares. There's no doubt it's quite an illiquid stock and these three especially seem to be acquiring more as well as driving the price on a lot of days. However, some posters go further than just saying it's an illiquid and volatile stock (up and down), they claim it somehow isn't a good stock for trading because the available shares are running out. I haven't seen a convincing defense of that argument so here's my perspective.

These are the substantial holders according to Comsec:

Polo Resources: 10.17%
Kalahari Uranium: 39.11%
Rio Tinto Group: 15.57%
New City Investment Managers Limited: 3.85%
Rest of top 20 holders (based on Top 20 update of Oct 2008): 23.08%

TOTAL: 91.88%

Shares on Issue: 228 297 605

Free Float (8.22%): 18 766 063

So how many shares would it take to make the stock drop to $4 on open today? Based on the current market depth, it'd take a sell order of 70000 @ $4. Would anyone actually do that? Probably not, unless they were trying to manipulate the SP. Obviously, market depth isn't the whole story because a lot of buyers will come from off the screen as the price falls. So let's take the recent drop of 22% on 9 April as an example. Only 2.43 million shares were traded that day. That's a mere 12.5% of the free float. I'm also assuming that the none of the top 20 holders ever adjust their holdings downwards, which is unlikely.

Hopefully we can now end the insults and condescending attitude towards anyone who suggests this is a still a tradable stock. There's obviously potential for that to work, IMHO (ie a 45-50% gain was possible in the last 2 weeks).

Long term holders and short term holders are not enemies. Short term holders provide liquidity so that long term holders can get out and get in when necessary. Long term holders reduce the free float and that creates volatility (up and down) that traders can exploit. There's no correct way to play a stock like Extract. Different people with different temperaments can all succeed with wildly different trading/investing systems.

Z