Interesting comments Wizzer. A few thoughts:
I understand your math based on share dilution....seems simple enough....but your math assumes that the share price prior to the placement was an accurate reflection of the market sentiments rather than being temporarily manipulated down. Yes, dilution is a factor that math can be applied to, but I would suggest the math be applied to a price prior to any manipulation that may have taken place.
The way that I would look at UBS (given that is the example being used here....insert whatever stock you might like) is the following.
1) Someone steps up in a big way and puts their money where their mouth is, strongly endorsing their belief in the company.
2) At the end of the day, there were over 200,000 shares on the bid between .20 and .23 (check the depth). That's more interest in one afternoon in UBS than I've seen for weeks and weeks.
Perhaps this view is simplistic, but I tend to take an approach that says "follow they money". The person who plunked down $800,000 on UBS is certainly playing with a lot more cash than me, and undoubtedly has far more knowledge of the company and its activities than I could ever hope to have. Would any of us place that kind of money on something we weren't VERY confident about? Not me.
I think just a raw math approach might be too simplistic when looking at PP's for a given company. A broader view might incorporate the following:
1) Manipulation of the price from reasonable levels:
Was the price knocked down? Was the placement "known" in the market already and reflected/adjusted?
2) The size/importance of the placement:
Is it a large placement that can have the added benefit of showing the market the confidence of some well informed individuals? Does the placement have positive sentiment building ability through the sheer size of the endorsement?
3) The timing of the placement:
In the case of UBS, I noticed that the general meeting was this coming week....coincidence????
4) And finally, as you correctly stated, the effect that the share dilution has on the company's existing shares.
Consideration of all of these factors (and probably a bunch more I haven't even thought of) might hopefully lead to a more broadened opinion as to whether to jump in or sit it out on the side.
Well if nothing else, some good discussion is being generated here. Thanks for taking the time Wizzer to add your comments. As always, it's a great education coming here to one of the best threads on SI!
Cheers
Kevin |
