Shareholding movements and adjustments

Dear reader.

Thank you for visiting my blog to discover what I endeavour to share with the world. Your time and attention is appreciated.

This blog is going to address a question that was posed by my favourite people on twitter, the #fintwitter peeps.

The question related to what happens when an investor decides to take the profits gained from the appreciation of the share price for the stock that they are holding.

So, strategies are important when you embark on investing. Refer to my blog What of these strategies they go on and on about?

If your strategy allows for investing in shares where you are looking to maximise your gains in the short to mid term, then you would be looking to buy shares that you are looking to lock the profits you make from them, in. This strategy borders on trading as it can be fast paced.

Here's a scenario of Yesterday, Today and Tomorrow...

If yesterday X bought shares for R80 and got 8 shares, it means that each share was R10 and contributed 12.5% to the whole of R80.

If today Y, buying the same shares for R80, gets 5.33 shares, it is because the share price has increased and each share now costs R15 and contributes 18.75% to the whole of R80.

X, who bought yesterday, has made a 50% gain on each share, so now X's share is worth R15 and contributes 18.75% to the new whole of R120.

So 5.33 * 15 gives X R80, which is the same as what Y has, the difference between X and Y is that X has pocketed R40 and is back to having the same whole as Y of R80 and no longer has 8 shares but has 5.33 shares.

If tomorrow Z buys the same shares for R80 and gets 10 shares, it means that each share price has decreased to the cost of R8 for each share, contributing 10% to the whole of R80.

Y has lost R37.36, which is 46.7% of R80. Now the shares are each contributing 18.76% to the new whole of R42.64 , which is essentially the same due to the adjustment in value. Share value adjusts based on the number of shares held when the share price changes.

X has also lost R37.36 as a result of the new share price, but X's profit of R40 has cushioned their loss such that they still have a profit of R2.64, that is money either in their pocket or invested elsewhere.

*You can even go so far as to say that X's investment is R40.00 and that would then mean that their 5.33 shares contribute about 20% to the whole that is R40.

With the new price, X's number of shares still being 5.33 does not give them 100% of R80 at a portion of 10% when compared to the number of shares Z has. So X has lost (100 - (5.33*10)) = 46.7%.

In theory, the money in X's pocket is still R40 rand, but taking into account the loss on the share that gave X that gain, X is tomorrow sitting on only R2.64 gains in real terms. So X has less stake in the shares than Y and Z, but when dividends are being paid, Z will get more than X and Y, but X's dividend yield will be more than Z's, in the way that X's adjusted average that accounts for his adjusted invested amount, actually means that each share cost X (40/5.33) = R7.50

Z's shareholding is now more than X and Y's, as he holds more shares for the new value of R42.64, so he got more shares for his additional R37.36 for buying when the price is lower. A whole 4.67 shares more!

The investor who is worst of as a result of tomorrow's move is Y.

I hope the above has clarified some of the questions you have about what happens when you do certain transactions on the stock market.

Thank you for reading!

My profile and bio, on twitter handle @guepard_1, has a poster with images of my fictional side. The stories I tell, will have your jaw dropping, hie hie hie...

Getting to know a company - How I do it

Hello there visitor.

Thank you for your interest in what I wish to share with you.

I will briefly cover how I familiarise myself with a company behind the share that I wish to own.

It won't be exhaustive, but will have plenty of pictures to accommodate those who are visual as well.

Let's get to it...

Visiting Sharenet I enter the share code or company name in the search input box and select the company from the list returned. These websites are dynamic and efficient.

Then it opens the page with all the summarised information about the company selected.

See the general share information that gives the share code and the industry it operates in, which in the current case is Engineering.

To visit the website I just click on the relevant option.

I then look for company information or about us and visit the different pages there.

Toggling the options on the left gives you details on the right.

As you can see, this is a duly registered company with a valid registration number 1966/002182/06 that can be verified with CIPC, which you can do for yourself.

The company has 2 divisions, namely; CEG and ESG

If you visit the Capital Equipment Group you will find information about who is at the helm and what group of companies are under this division.

I leave it up to you to consume the information and employ your comprehension skills.

The same can be done with the Engineering Solutions Group.

Back on sharenet, you can find summarised fundamentals of the business. You can see that the market capital for this company is over 672 million

Comparing it to other listed companies in the same industry, it shows up as the second largest, Master Drilling being the largest. I went to sharedata to get the list of companies in its sector as sharenet wants me to be a subscriber to see that information.

You can also use the historical performance graph to check how it has fared against the overall performance of the selected comparison index.

Against the sector it operates in, you can see that it has been under-performing since sometime in late 2014, early 2015

Against the Market Capital that I am comparing it, as can be verified on this site, which is SmallCap, it has also started under-performing somewhere around 2015.

Toggle between the Prices tabs to see things like spread, number of trades made, highs and lows, trade volumes, moves for different periods, including year to date. 

Yesterday, when the market closed, the spread was ((620-612)/620) 0.13%. %Move indicated the price increase from Thursday's close of R5.99, so the price grew by R0.21c, which is also shown there.

Since 2015, as per the Closing Prices tab, it has lost share price value of about 92%, meaning that if you entered the market at its peak in 2014, you have been losing share price value since. But if you have entered the market in the past month, you have gained in share price value by about 46%

So much information is available and can be analysed at your own pace, using the dictionary to help words and definitions outside your vocabulary.

Below are some historical performance ratios as well as dividend information. You can see there that I have highlighted unissued shares, these are shares that are authorised by the company but are not made available to be traded on the stock market.

If you don’t like reading, this is likely to seem like a nightmare, but you are not doing yourself a favour by choosing to stay ignorant. I hope you choose knowledge

You are however, doing a-charlatan-that-banks-on-your-ignorance-in-order-to-fleece-you with promises of unrealistic returns -- which you won’t be able to spot as you are unfamiliar with the realistic performances typical of an industry or a company operating within that industry -- the favour of making his or her defrauding of you easy.

Sharenet and sharedata are just some of the websites that give this information on local stocks, relatively for free. There are others you can discover for yourself through your preferred search engines.


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