Institutions - Buying/Selling?

coyotte · 14 December 2006

Something I,m having trouble understanding ,why does this happen ?

SBM -- several months ago announces a 60c placement with the Institutions ---the result the price drops below 60c

BLD --- Institution announces they have SOLD out -- result price goes UP

ILU ---- Institution announces they have ADDED --- result price goes DN

Thought that the Institutions buying/selling is what supported price ?

Cheers

nizar · 14 December 2006

Re: Institutions--- Buying/Sellng

coyotte said:
Something I,m having trouble understanding ,why does this happen ?

SBM -- several months ago announces a 60c placement with the Institutions ---the result the price drops below 60c

BLD --- Institution announces they have SOLD out -- result price goes UP

ILU ---- Institution announces they have ADDED --- result price goes DN

Thought that the Institutions buying/selling is what supported price ?

Cheers

Yes i agree wholly.
Same sort of thing i was talking about in the INL thread.
Its very hard to know what news will make the share price go up...

theasxgorilla · 14 December 2006

Re: Institutions--- Buying/Sellng

It all depends on how much we're talking about and the liquidity of the share and what is happening in the market that perhaps isn't being announced. One small institution announcing that it's become a substantial holder might have bought into a market where a much larger institution is in the process of ceasing to become a substantial holder.

Nick Radge · 14 December 2006

Re: Institutions--- Buying/Sellng

Any placement is a natural arbitrage and therefore will force the price down the placement. Think about it. You get offered XYZ at 80c when its trading at 85c. You get an instant 6.15% return. You immediately sell the stock to realise the gain...as do others. The share price drops under that pressure.

theasxgorilla · 14 December 2006

Re: Institutions--- Buying/Sellng

If you're an institution and you get a placement at 80c and you were in the market to accumulate anyhow, maybe you'd pull your buy orders and save yourself the brokerage, further reducing liquidity on the buy side.

stoxclimber · 14 December 2006

Re: Institutions--- Buying/Sellng

Placement at 60c signals to the market that the shares are worth 60c or less (although there are exceptions of course e.g. companies which avoid debt). Other examples don't know the details.

theasxgorilla · 14 December 2006

Re: Institutions--- Buying/Sellng

Just to play devils advokate, as I think this is an interesting topic, what if you could not get shares via the placement, but your own valuation of the organisation was above 60c per share?

scsl · 14 December 2006

Re: Institutions--- Buying/Sellng

stoxclimber said:
Placement at 60c signals to the market that the shares are worth 60c or less

Really? Aren't placements made at a discount to the current market valuation of the stock (- this being the current share price) so that institutions have an incentive to buy stock?

Freeballinginawetsuit · 14 December 2006

Re: Institutions--- Buying/Sellng

scsl said:
Really? Aren't placements made at a discount to the current market valuation of the stock (- this being the current share price) so that institutions have an incentive to buy stock?

It is also beneficial for the SI/insto to assume a substantial position at the one SP, this wouldn't be possable in the open market, especially with the low volume minnows. Thats incentive alone for an SI/Insto, take JMS for a recent example.

A good company will trade the RTS that existing share holders have in a placement, Take ROC as a recent example. EVE was a recent example were the SP didn't really suffer that much after a discounted placement.

LOL, and BDG would have to be one of the only ones I can remember were their placement is at a 3 percent premium to the market SP

coyotte · 14 December 2006

Re: Institutions--- Buying/Sellng

These companies are not minnows , they are all in the ASX 300

After reading the replies ( thank you ) beginning to think this may be instro playing instro -- the small instros buying/selling in small parcels over a period which comes the attention of the bigger insrtros who are already holding the stock --- when the pressure from the small instro is finished (the annoucement ) then that is the signal for the bigger boys to move in .

So maybe the so called "smart money " comes back to size

Cheers

barney · 14 December 2006

Re: Institutions--- Buying/Sellng

Freeballinginawetsuit said:
It is also beneficial for the SI/insto to assume a substantial position at the one SP, this wouldn't be possable in the open market, especially with the low volume minnows. Thats incentive alone for an SI/Insto, take JMS for a recent example.

A good company will trade the RTS that existing share holders have in a placement, Take ROC as a recent example. EVE was a recent example were the SP didn't really suffer that much after a discounted placement.

LOL, and BDG would have to be one of the only ones I can remember were their placement is at a 3 percent premium to the market SP

PSA is another one .... Placement offered at $2.40 on 5th December .... Current SP $2.33 Wonder how the "investors" are feeling about that ??

News today that PPT dropped BLD and bought into JHX yet both shares went up (then again so did most things today ... JHX went beserk !!)

stoxclimber · 14 December 2006

Re: Institutions--- Buying/Sellng

scsl said:
Really? Aren't placements made at a discount to the current market valuation of the stock (- this being the current share price) so that institutions have an incentive to buy stock?

Not all.

If we have a hypothetical company with an intrinsic value of, say, $1:

If the company issues equity at a price of 90c, existing shareholder value is diluted.

If the company issues equity at $1, there is no chance to existing shareholder value.

If the company issues equity at $1.10, then existing shareholder value is increased.

Therefore, one would expect that firm managers would only issue equity at a price which was greater than or equal to the intrinsic value of the firm. So, a capital raising below the current share price is a signal that the company is overvalued.

Of course, there are exceptions such as e.g. companies who are unable to bear much debt may need external funding and equity is their only option - see finance theory for more info if interested.

nizar · 15 December 2006

Re: Institutions--- Buying/Sellng

stoxclimber said:
Not all.

If we have a hypothetical company with an intrinsic value of, say, $1:

If the company issues equity at a price of 90c, existing shareholder value is diluted.

If the company issues equity at $1, there is no chance to existing shareholder value.

If the company issues equity at $1.10, then existing shareholder value is increased.

Therefore, one would expect that firm managers would only issue equity at a price which was greater than or equal to the intrinsic value of the firm. So, a capital raising below the current share price is a signal that the company is overvalued.

Of course, there are exceptions such as e.g. companies who are unable to bear much debt may need external funding and equity is their only option - see finance theory for more info if interested.

Intrinsic value means nothing in this case.
Market price means everything.

Nobody cares if a placement is at a discount or premium to the intrinsic value.

Value is whatever price the market is willing to pay. In the case of stocks its the last sale price.

Freeballinginawetsuit · 15 December 2006

But it is nice when a placement includes RTS's which you can trade/convert whilst the SP holds a premium to them .

stoxclimber · 15 December 2006

Re: Institutions--- Buying/Sellng

nizar said:
Intrinsic value means nothing in this case.
Market price means everything.

Nobody cares if a placement is at a discount or premium to the intrinsic value.

Value is whatever price the market is willing to pay. In the case of stocks its the last sale price.

Sorry, but this is completely incorrect. The firm is a series of cash flows, and a share is a claim on that series of cash flows. That claim has an intrinsic value. Issuing equity below that intrinsic value price reduces existing shareholder value.

Market price is irrelevant, except to the extent that market price should coincide with intrinsic value in an efficient market.

Institutions - Buying/Selling?

coyotte

nizar

theasxgorilla

Problem solved... next bubble.

Nick Radge

theasxgorilla

Problem solved... next bubble.

stoxclimber

theasxgorilla

Problem solved... next bubble.

scsl

Freeballinginawetsuit

coyotte

barney

stoxclimber

nizar

Freeballinginawetsuit

stoxclimber

Similar threads

Institutions - Buying/Selling?

Problem solved... next bubble.

Problem solved... next bubble.

Problem solved... next bubble.

Similar threads

Privacy & Transparency

Privacy & Transparency