Educate yourself or leave it alone

Published in Geelong Advertiser, March 2010 by Dale Gillham

Investing in company floats is a risky business, especially when you consider that more than 50 per cent of floats trade below their issue price in the first 12 months, with some never to recover.

Therefore, the odds when buying into floats are no better than if you were to put your money on red or black at the casino. 

In fact, the probability that you can buy into companies at prices well below their IPO offer is higher once the shares are trading on the open market.

An example is the recent float of Myer Holdings, which raised$1.8 billion from investors at $4.10 prior to listing in November 2009.

Brokers valued the shares at 10 to 20 per cent above the asking price, so how is it that they fell to $3.12, or 24.4 per cent below the offer price in just three months?

Who is to blame? Is it the company selling the shares, the broker who sold the float to investors, or ASIC for not protecting investors?

The original shareholders of Myer and the brokers were trying to make money out of the float, so in my opinion this puts a bias on the information they gave out.

That leaves ASIC, whose role is to ensure the company followed the Corporations Act in compiling the Product Disclosure Statement, not to determine whether the investment is good or bad.

So investors need to take responsibility for their own actions. I have always said, if you don't understand what you are investing in either educate yourself or leave it alone.

So what can we expect in the market?

We have now seen the All Ordinaries Index trade higher for five consecutive weeks, which has only occurred twice since March 2009.

Over the past two years the longest run up without a down week is six weeks, and therefore we can reasonably expect that our market will trade down in at least one of the next two weeks.

It is also possible that we will see two or more weeks down. 

The important thing to understand is that this is the normal process of the market unfolding, which could present an opportunity to buy into some good shares at reasonable prices.

Overall, I still believe we will see the market rise through 5000 points and up to around 5200 points over the next few months into June, with our next low due sometime in July.

The opportunities are likely to come in media, banking and healthcare.

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