Forum Archive Index - June 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Dean,

>
> Anyway are investors rational or not.  I'll present the facts and
> leave you to decide...
> 
> Richina Pacific recently conduted a 1for1 rights issue to raise
> US$10.4 million, current investors in the company could elect to pay
> for their entitlement in US$ or NZ$ and the rates were set by the
> company so that you could pay either US$0.145 or NZ$0.28 per share. 
> 
>if you subscibed for your rights in NZ$ you 
> paid  28 cents NZ per share, but if you paid for your rights in US$
> you only paid 25 cents NZ (US$0.145 x 1/0.58). This meant that if you
> paid in $NZ you paid a 12% premium for your shares as opposed to if
> you paid for them in US$,
> 
>9% of subscibers by paying for their shares in
> NZ$ burnt approximately $200,000 of their own money for no good reason
> other than the fact that they did not think through the transaction
> logically or couldn't be bothered with the hassle and cost of a bank
> draft!  I guess that if all of them were tiny shareholders then the
> cost benefit analysis of this may have been logical but I doubt it.
> 
>

Why doubt it?   9% of shares owned by shareholders holding a parcel of 
shares so small that it was not economic to get a bank draft sounds 
about right to me.    Given that such a transaction might require at least 
two visits to a bank branch, and that there are some towns that don't 
even have banks that deal in overseas funds, why berate people for 
taking the logical option and sending in an $NZ cheque?

>
>
> This raises some interesting points -
> 
> Are investors really rational?
>

No.  Whatever gave you the idea that they were?

>
> Was the company at fault by not advising its owners to pay in NZ$? (In
> effect this resulted in a transfer payment from the unwary (the
> investor) to the wary (the company).
>

No.

>
>If this type of transaction is
> typical then it leaves us some hope that markets are not truly
> efficient and that an investor that does his homework has a 
> reasonable prospect of making a buck.
> 
>

Really Dean, people like Buffett have been investing on the principle 
that markets are not efficient for decades.  You are a bit behind the 
times ol' son.

But also investing does not rely on you outguessing the other guy to win.
Investment is not a zero sum game, so it is possible for every investor to 
be a winner.    

Of course, share trading is much closer to a zero sum game,  which 
means the average pure share investor will always outperform the 
average pure share trader.

SNOOPY




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