XAO (ASX) Short Term Trading Weekend Lounge: 23-25th Feb

Originally posted by Dazedandconfused ↑

SOI can be a problem for a Co that wants to dual list... I don't trade other exchanges, so my info is suspect... but I believe brokerage rules are different in Europe and are sensitive to the number of shares traded.... and in the US/Canada the SP can determine how a company is listed and there is buyer resistance to billions of shares trading in the penny range.

Down in speccy land the attention is on the market cap ...100's of millions of shares doesn't seem to bother people. How well the management care for the register is important if you are looking at a company for a long term [many years] investment. The example of FMG came about due to success... management did a 10 for 1 stock split when the SP was north of $60.

A company with a couple of billion shares probably got that way because of multiple CR's... the question to answer is ... did all of that new money raised grow the company or has it disappeared... was it spent on company development or did it go into administration expenses [cough, cough]. The so-called 'boiler rooms' have been a facet of the penny end of the market for a very long time. The stocks being traded [or better described as pumped and dumped] historically almost never rise above a few cents. For them to do so is an undesirable outcome for those seeking to exploit the market because the profit comes from the percentage changes, which are greater if the price trades in a perpetually low range.

There are many levels operating in the market. A lot of successful traders make money because they are closer to the deals in the early stages... so ... brokers will have a list of go-to clients for IPO's and CR's. Those people who are networked in this way will receive discounted placements in exchange for taking large positions... the amount of shares on issue is not an important factor for them because their risk is mitigated [they don't always make money but usually they do] but for the retail person outside of that loop [and therefore the person targeted as the exit for the large holders] it is a question of how much 'meat is left on the bone' and whether the funds raised are actually sufficient to produce a commercial outcome which offsets the dilution of the register [i.e. are more CR's likely, which further increases the SOI]. There are a number of Co's which over time have demonstrated themselves to be only money printing operations dedicated to maintaining director lifestyles and they eventually fail.

Another thing which occasionally happens is a Co is a genuine business but the management is less so... in which case greed is satisfied through a series of steeply discounted issues which consistently are placed into the same hands .. resulting in a change of control away from the retail holders who have been diluted out of any meaningful ownership. Many 100's of millions of shares is something to examine carefully.

In short term trading what you are looking for is a stock which is miss-priced and also [crucially] has a near term catalyst which fairly soon leads to re-rating and a price discovery which reflects its intrinsic value. The number of shares on issue is not a significant factor in that.... the important info is the market capitalisation, cash position and enterprise value.

With long term trading [investing] the SOI is an important consideration because it can give an indication about the quality of management..... if, after several years, management has not issued millions and millions of shares it says quite a few things. Firstly those shareholders who bought early on have retained maximum value [assuming the Co is a viable concern] and it is an indication that management might be concerned about shareholders. It also is some evidence that management actually knows how to control expenses and can accurately forecast the financial needs of the company [i.e. they raised the correct amount in the original IPO or the Co has some cash flow and earnings which are well managed]

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Brilliant post mate. You've summed up the spec market perfectly! Whilst there's the occasional diamond among the rough, it's mostly just brokers offering their clients discounted placements and then targeting retail as an exit strategy; the ease of which has been compounded by the advent of stock forums and social media.