Posted by kcchongnz > 2014-01-08 13:44 | Report Abuse

This article brings to the attention of two important things about investing:
1. Does bonus issues and share split etc add value to shareholders?
2. Two stocks A & B has different par value, A at 50 sen and B at RM1.00. They earn the same EPS of say 5 sen, and everything else assumed the same. Both the share price are at RM1.00. Does it mean that A is twice more expensive than B?

My response to question 1 is:
Waiter: Do you want to slice your pizza to 5 pieces or 10 pieces?
Me: No, 20 pieces please. I am very hungry.

Everyday formers here argue about how great is the bonus issue and share split and other things like cash payout. AncomLB going to pay a special dividend of how many 4 sen, and another say 8 sen. So 8 sen payout is so much better. Does it really matter that much that for example you have a small business and you find that the till has a lot of money and you make a withdrawal of say RM2000. And now you claim that your business is better than the same business of mine which earn the same profit and cash flow, but you make a withdrawal and I don’t?

My action:
I will make use of the psychology of investing, the cognitive bias of mental accounting of the masses; buy when there is a bonus issue or share split, preferably getting some insider information first, and sell later after the share price has been chased up.

My response to question 2 is there is no difference at all for an investor whether investing in A or B; except some accounting thingy which is not much of a concern. The value of a stock is all depending on its assets per share, earnings per share, cash flow per share, earnings yield (ebit/ev), future prospect etc; but nothing about par value. Par value is immaterial to investors. I think there is why SC is going to do away with the par value thingy as it has no effect except for some corporate exercise thingy.

My action:

Buy the cheaper PE, P/S, EV/Ebit of the two and short sell the expensive one and earn a riskless profit (if I can short sell). Market will eventually adjust the discrepancies and the market will follow the Law of One Price.

Posted by bsngpg > 2014-01-08 14:51 | Report Abuse

Psychology.

I can consider myself one of the experience investors in Bursa yet I cannot get thru psychology barrier on DLady at RM47. If it splits 1 to 10 making it RM4.70(same value), I would have bought it already. I believe there are many people having same mindset as mine.