In my last two articles on “freebies are goodies?” in the links below,

http://klse.i3investor.com/blogs/kcchongnz/106438.jsp

http://klse.i3investor.com/blogs/kcchongnz/106452.jsp

I wrote about whether those corporate exercises such as bonus issues, free warrants and share split do the following things

1. Do they create value for the company?
2. Do they maximize shareholder value?
3. Do the ordinary non-shareholders benefit from the exercises?

I have taken pain to collect all the information on the dates and detail of the corporate exercise, carried out some event studies on those exercises to show how the share prices of a few companies reacted to those exercises.

My article answered all the questions above.

For question 1 above, I argued that creating more shares by issuing bonus issues, free warrants and share split do not create any additional value for the company. Value simply can’t be created out of thin air. Can it? If you still insist yes, that 1+1 equals to 3, I really have nothing else to say.

For question 2, if you care to read my article thoroughly, the answer is yes, and no. It is yes for good companies with great future not already known widely as the corporate exercises serve as catalysts to unlock their true values because Bursa is efficient. Those examples are Hevea, Lii Hen, and George Kent.

Now take a look of these two graphs on the share price movement of EAH and Vivocom again.

The above event study shows before the public knew the bonus issues, insiders were already collecting and pushing up the price to its peak of 13.5 sen from 11 sen before the announcement. Its share price already started to drop before the announcement and continued to drop after the announcement unabated to just 6.5 sens by July 2^nd 2015.

Tell me, did this freebie create shareholder value for the existing shareholders? Mind you, the share price had dropped from about 10 sen to just 6.5 sen in the process of that exercise. This is in a space of just 6 months, not 10 years. How many ordinary shareholders have sold off their shares at the peak of 13.5 sen, or anywhere near there in that one-month period? Show me your hands!

What do you think of those poor new entrance of non-shareholders chasing the share when it was selling near its peak? Did it create shareholder value for them? This answer question 3 above resoundingly.

Who were the beneficiaries of this exercise? I hope you know who he was of they were, and know also who were the patsy, bear in mind in this type of game, there must be winners and losers.

Any difference for the Vivocom example I gave as shown in the graph below?

A little difference maybe. In this case Vivocom’s share price continued to go up after the announcement. Did the bonus issues create value for the company? Mana? Dari mana?

Did the exercise maximize shareholder value? Yes, if you as a shareholder sold off when the share price was on its way up to its peak before and after the announcement. Those of you who have done that hands up.

Did it maximize shareholder value if you are a long-term investor of Vivocom? Note its share price now is even below the price before the announcement. Where is the shareholder maximizing thingy?

What about those poor new shareholders who bought the shares when the bonus issues were announced? How much have they lost? Again this answers question 3 above.

Is it so difficult to guess this exercise actually maximized which shareholder’s value? And also bear in mind, in this type of game, someone made big money, and there must be others who have lost. It is hard to believe that ordinary shareholders, or ordinary speculators were the ones who made the money.

My articles actually tried to convey and share the message which is aptly described by this excellent comment below, and I wonder you got it or not.

Posted by stockraider > Oct 16, 2016 10:37 AM | Report Abuse

Actually u need to view the freebies in 3 perspective;
1. academic; thereotical No different like most university professors said.
2. Practical View bonus as positive....if your counter is undervalue, having bonus will bring up and sustain a higher value in your stock, even short and long run.
Bcos this bonus call for rerate the valuation of your stocks.
3. Practical View bonus as negative...if your counter is overvalue, having bonus, give u is chance and opportunity to sell....as usually short term it will bring up the value, thus u should take the opportunity to run fast. Bcos long run, it will come down bcos of overvalue
Raider see bonus are use as a publicity campaign tools use by companies, u need to make use of it intelligently in order to profit from it

But why did this gentleman (is he?) made such a statement below?

Posted by donfollowblindly > Oct 15, 2016 10:16 PM | Report Abuse

Agree. Condemning is his motive. KC also a lot of Holland counters. Pls refer to my past posts. If he is really good he must be very rich and no need to beg people "joining his course for a fee" in his numerous blogs.
 

Was I sharing something useful, or was I condemning anything? Why did I condemn? Was my sharing deserve your condemning?

I have a lot of Holland stocks? Sorry, I have never invested in the Amsterdam Stock Exchange before. I do have one Dutch student investing there.

Oh, you may be saying I have a lot of stocks which I have lost a lot of money, or causing you to lose a lot of money. Where, as published in i3investor? Please list them down. But just don’t talk about just 2 or 3 stocks which I had published which had lost money. List all those stocks I published in i3investor which I talked about when others asked me, stocks I had in my at least 4 portfolios of stocks published in i3investor, and many others which I have written about with detail analysis and comprehensive reports in i3investor, sharing my knowledge and experience in a public forum for free. Please do that to justify your claim. Please, please, please!

And how do you know I am not rich? Which word did I use that you imply that I am begging people to join my course?

Yes, nowadays I often end with inviting others to join my fundamental investing course. That is correct, but why do you say I “beg”?

But seriously I think you should take up this course of mine and try to learn something useful about finance and investing. The details of it can be found in this post below:

http://klse.i3investor.com/blogs/kcchongnz/78867.jsp

Why do I conduct this online investment course? I don’t think you can appreciate the joy of it. Just read one of the scores of comments from my students. This one was from a 69 years old specialist doctor who is one of my course participants who have also enrolled three children of his children in my course.

“KC, it was wonderful getting to meet you in person and knowing you personally. Keep up the excellent work in educating a new generation of young investors”.

And the comment from this guy below whom many here know too.

[Posted by Ooi Teik Bee > Jan 7, 2014 09:33 PM | Report Abuse

Dear Kcchongnz,
I had learned FA from many teachers, you are the best among all. I pay money to attend many FA courses, so far I learned the most from you.
What a waste of your talent or knowledge ? You should stay in Malaysia, with your knowledge, earning money from stock market is as easy as "makan Kacang". If I had known you earlier, I should do very well in KLSE. I am a proud person, I do not praise people unless he is very good. You can set up a fund management company, I am sure many will invest with you. If you are interested, please let me know.
Thank you very much for your help.
Best regards always, Ooi ]

More,

Hi KC,

I think so far you have done best for all of us. I really appreciate your hard work, time, effort & patient on delivering this training even though the fee that you charge is very less or I can say nothing.

I'm really happy with my self, prior to this i don't even though a simple ratio like PE, EPS, ROE, ROIC, etc but now i can say i'm improving a lot, i have clear & good understanding on income statement & balance sheet now. 

I'm working on 5 x 5 weeks rotation in oil and gas drilling where sometimes i'm required to travel to remote area with limited internet excess, but this should not be an excuse for me to improve my knowledge in fundamental investing, i will always try to find time to learn something from your post. I will be on  5 weeks off soon, I will try to spend more time during my 5 weeks off & catch up things that i left behind.

Many thanks Sifu, thats what I address you when I talk to my wife. :)

Thanks,

And more, this was also a senior doctor I was so happy to meet in Penang two months ago,

I strongly recommend any one who wants to make money in stock market to learn from Mr KC Chong, my most revered guru! I knew next to nothing about finance, let alone financial analysis, and I followed his financial course, so, on last Wednesday and Thursday, when there was blood bath, I dare to nibble certain stocks with confidence, and on Friday, I was one of the happy men in KLSE small time retailer. Of course anything can happen for the next few weeks but certainly, I am not SCARED. I am looking at 3 to 5 years' price! So, do you think you want this type of investment or just to listen to rumour or the so called certain analysts' recommendation?
Join me to attend Mr KC Chong's financial course, you won't regret.

More, more and more.

Would you like to be like one of them for your own good? Please contact me at

ckc14training@gmail.com