Forum Archive Index - June 2003

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

Hi terry,
 
> 
>>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. 
> 
> Hi Snoopy 
> I think you are right because the average trader would have sold the
> rights issue  and the smart investor would have added rights issue to
> their portfolio.  T
> 

No Terry, I don't think you fully understand the point I was making.  
The value of a shareholding immediately after a rights issue issue 
should be the value of the share immediately before the rights issue 
was announced plus the money contributed to the rights issue.  

No money has been created or destroyed in a rights issue.   If you take 
the time period immediately before the rights issue and the time period 
immediately afterwards, then no wealth has been created over that 
timespan.    This means it is a zero sum game.   

Accordingly the expected performance of the trader and the investor 
over the period of a rights issue is exactly equal.  This doesn't mean 
that it is impossible for any person to make money over the period of a 
rights issue.   It simply means that if you average out all the 
transactions over all the investors involved then on average, counting 
everyone, the overall gain will be nil.

As to whether the person that sold their rights or the person who took 
them up was 'smarter' I cannot say, because I haven't studied RCH in 
detail.  If RCH is losing money consistently, and will continue to do so, 
then RCH is a 'negative sum game' and the investors are fools.

The only thing that gives investors the edge 'long term' is that taking 
the market as a whole 'more money is made than lost'.   The people 
who make the money on the market - long term-  will be those who 
stick around long enough to reap the benefit of the growing earnings 
pie (retained earnings/dividends).

SNOOPY




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"You can tell me I'm wrong twice, 
but that still only makes me wrong once."


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