The Effect Of Our New Share Purchase Plan Regulation In General.

IMPORTANT UPDATE PROVING MY POINT. LOOK TO THE BOTTOM.
Brought to the front again because of further stunning news. Perhaps undermining the point I was making. See again below. I’m telling you straight. Minemakers is a great company and will be way too cheap anytime soon.

CALIPH BARRY I (THE USURPER) GUARANTEES THIS VALUE INVESTMENT.

I don’t know when this regulation came in. But there are some things we can say about the general effect of this regulation on the shares of small, cash-poor companies.

It is supposed to be a way of treating the long-term shareholder well. And in an egalitarian way. Since it gives you discounted shares in parcels of 5000AUD or 10 000AUD. That is to say that an existing shareholder who has maybe 1 million dollars in shares already, does not get to have greater access to discounted shares.

The net effect is that a buy and hold strategy cannot work for this type of share. Because the share purchase plan, under this scenario, will not favour the long-term true believers in the share. Rather it will redistribute ownership to those who have previously owned few shares and instead who buy just enough to take full advantage of the share purchase plan.

The reason for this is two-fold. As in normal new share issues the equity is diluted. But previously it may often have been diluted in such a way that current large-shareholders could maintain their current share if they wanted to. The other thing about this share purchase plan is it creates a MASSIVE OVERSOLD POSITION FOR THE SHARES.

The phrases OVERSOLD and OVERBOUGHT are words used not so much by the value investors. But rather by the trends analysts and chartists. The shares are massively overbought thanks to these regulations. Because putting a 5000 AUD or a 10000 AUD cap on the amount of discounted shares you can buy throws the share issue open to the widest possible public. Everyone who had ever thought of buying the shares and can afford to buy them will buy them at this point. Thereafter there will be heaps of people wanting to sell at not too much above the discounted price. But there will be no-one willing to buy. From a value point of view the shares are now worth less than before as well. Since the equity has been diluted.

So we have a clear view of what ought to happen next. The market will turn bearish for these shares all at once. The market price will fall very close to the discounted price. Or even below it.

But from that ultimate of oversold positions, if it is indeed a good company, with a good future, then we can expect a very quick runup in the price on good news, once a few months have passed, enough for this overbought situation to be cleared.

Remember that here we talk only of good undervalued cash-poor companies that are selling on a massive discount. This is what happened with Galaxy. Galaxy had massive deposits of Lithium-precursor. And its price/book value was ridiculously low. So if you had faith in both the Lithium batteries future and in Galaxies management you would have to know that it was a good undervalued company.

So after their share-issue, despite the company presumably being underpriced, the shares were diluted and oversold. Hence the market price had to drift slowly down near the discounted price. And then stay there for awhile. But then a few months later, when Ignatius Tan announced that they’d sussed out a plan for a Chinese site to process all their gear the shares suddenly bounced up to almost a double of what they were. I sold mine about half the way up because I was sick of all my small company shares being IN-THE-FREEZER as it were. I knew I wasn’t going to actually lose money on any of them. But they were dead.

Well anyhow part of the reason why they were dead I think is these share purchase regulations. Not that they are bad regulations as regulations go by the way. But it does mean you cannot really emulate Warren Buffet with this type of shares.

Instead you want to have done your homework but not necessarily have bought many shares. Then when they announce their share purchase plan thats when you really want in, in a more substantial way.

And you ought to take advantage of that plan, or better still if I’m right about the logic of the effects of this, wait a couple of months after the SPP and buy in then, when you think the market has absorbed the overbought situation. Thats probably the better plan if you get nervous thinking you’ve put your cash in cold storage.

Probably if you are in a dreadful hurry to get rich and you want to trade in a pretty active way, you would buy in a couple of months after the share purchase plan was over.

Now I’m not recommending you take advantage of the Metal Storm plan on a VALUE INVESTING BASIS. I’m saying you ought to do so on a self-preservation and patriotic basis. Because there is no question whatsoever that this is stunning military technology and keeping this company in Brisbane ought to make you sleep better at nights.

But its not a value investing buy. Since while this technology is a fundamental leap ahead for the military (at least once its further developed) this does not guarantee that the company itself will be a success. Only that the technology will be a success.

But if there is a good time to buy then what I’ve told you about this share purchase situation, the best time would be to buy into the share purchase plan itself. Or to buy the shares a couple of months later.

If the company is indeed fated to survive and prosper you ought to see the cheapest prices during the SPP or as the market price drifts down during the following month or two. The faster money would probably go for the later buy. Thats not what I’m recommending for MST simply because this is no share tip but rather a plea for people to think patriotically about matters.

If the company is to survive and get major clients thereafter then you ought to see a rally in the shares, on good news, within a few months of NEXT MONTHS (ie June 2009) SPP. So buy in now. Or buy in July or August. There is a good chance you will do pretty well from it.

But this is no stock tip as such. Its too hard to value this company. So I have no way of telling you whether its under-priced or not.
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WELL WHAT WOULD BE A GOOD VALUE INVESTMENT TO BUY RIGHT NOW?

You want a company that is already making a small profit but that is on the way to making a large one. That way they won’t have to have an SPP and dilute their stock in the above way.

You want a company that mines preferably gold and silver. Since Barry Hussein Adolph Barrak Soetoro Che Obama is determined to destroy the USD, so that even if you make a mistake this idiot traitor will bail your ass out.

You want a company that can pull out ounces of gold and silver more cheaply then the other companies. So that when there is rampant inflation they can still pull the gold out at a massive markup.

Now I could give you a few companies that fit that description. But I’m not allowed to. However these people here can help you out for an absolute certain payback if you can wait until the USD is truly wrecked (less than three years for sure) And you should do well out of them. Because that fake-ass usurper President is guaranteeing your investment.

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I’m more sure then ever that I have found the reason why the ethical-shares I had chosen were “IN THE FREEZER” as it were. Its not to be ruled out that broker-share-pyramiding isn’t playing a part in this. But the thing is that these are cash-hungry small companies, even though I’ve gone out of my way to choose undervalued cash-hungry small companies.

And as if to prove my point one of the investments I would suggest is the most ethical of all just announced a share-purchase plan. Its now Thursday May 28th at about a quarter past noontime.

About 23 hours ago Minemakers ….. ASX:MAK announced a share purchase plan. Their shares immediately tanked.

http://www.google.com/finance?q=ASX:MAK

So we can be sure that the effect of these regulations (not wholly bad regulations as far as these things go) has transferred the wealth from the stay-and-hold crowd to those who get in on the discounted shares in the share purchase plan AND THE FAST MONEY FOR THIS TYPE OF SHARE WILL GO TO THOSE GUYS WHO BUY IN AT A LOW A LITTLE BIT AFTER THAT.

No doubt when people get wind of this the response will evolve. But like all regulations that are not specifically clarifying property titles, they wind up handing a bit of a racket to the already with-it and wealthy.

Minemakers is a particularly ethical investment but I don’t want anyone to get burned on the basis of my recommendation so thats why I’m telling you what I’ve sussed out about how this small-cap situation has evolved since I last lashed out to solve a few problems.
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Well other factors seem to have gone into overide status unless the general truth of this thread is wrong or only partly right. Minemakers was a fantastic company. Which is why I bought into it in the first place. And it quickly recovered the news of the share purchase plan and soared up above 70cents in early June. Of course its worth much much more than that or I wouldn’t have bought it in the first place.

This will be the case with all the shares I buy other than perhaps metal storm. The fellow I sell to is likely to make more money then me out of the shares. Since it is my intention to find them super-cheap and sell them still very very cheap. And try and make up in the humblest of ways, for the debauch our horrid fiat fractional-reserve monetary system does to our capital markets.