My Share Investment: 02/01/2008

Reporting Season

Confirmed. AFG had a freefall after they're releasing their Half Year Report, and commenced trading. So much of making $83 million dollars, but with the debt up to your neck and ear, everybody wants to run away from you. For me, it's the biggest lost I've experienced at the ASX.

Oxiana's Report affected the share price the other way. Profit down about 45% this half year, but growth are predicted strong, and so this few weeks we have seen Oxiana's running, nice and smooth.

IBA reported it's half year result today, and despite increases in total revenue and EBITDA, market wasn't happy. It went down as low as 10%. Wondering if it's iSoft or their debt concern.

Tassal Group and REX is also scheduled to report today.

Oxiana!!

One thing I remember about Oxiana it that Owen Hegharty, Oxiana's MD, said sometime last year: Oxiana's growth is strong and solid. If the share price is going down, just buy more!!
And while I don't always do what the directors or brokers are telling me, I found myself quite heavy on Oxiana.

The last 6 days has seen Oxiana share prices climbing up steadily. It has put up more than $0.50 in a week, and up more than $0.90 since my last topped up three weeks ago (31st January 2008).

Oxiana reported a big cut in it's half year profit recently, but also reported that the company's growth is solid. This also coupled with the current strong price of copper and gold.

Gold is very strong, and copper is getting stronger each day. It is reported today that copper's price jumps to highest since 2006 on inflation-hedge demand (you know -- increased demand for raw materials as a hedge against inflation).

So far, OXR has been tracking copper's price.

Another Takeover Deal?

The share price of CBH climbed up sharply this morning. It rose as much as 23%, or 8 cents, to 43 cents. CBH Resources has confirmed that it is in confidential discussions with Perilya Limited regarding a possible corporate transaction which centres on maximising the value of the respective groups' Broken Hill operations.

Seems like we have to be ready for roller coaster ride this season. Just the other day, on a volatile trading day, MGX went down from $3.35 to as low as $2.70 (intraday), just to go up again the next days. CBH was down sharply yesterday, to bounce back again today.

The difference is: I know today that CBH is in talk with Perilya; I still don't know what's the reason of MGX's dip the other day.

Today's news from the Sidney Morning Herald reported that the managing director of CBH, Bob Besley, said the companies were still examining the best possible way of combining. But he indicated the likely outcome was for Perilya to make a scrip bid for CBH at a premium to the target's share price.

It is understood Perilya has already run due diligence on CBH, but it might take a few weeks more for the companies to agree on the final price. CBH's largest shareholder, Toho Zinc, is believed to be supportive of the deal. Last year, it had pushed to oust the chairman of CBH, Jim Wall, over corporate governance issues.

Other parties, including an international miner, have also been examining CBH's books in recent weeks. It is possible a Perilya offer for CBH could draw out another bidder.

The Takeovers Panel

Reading parts of the (Australian) Corporations Act 2001 this morning (Chapter 6: Takeovers), I've just realise how complicated a takeover can be for the companies. For my own part (until recently), takeovers mean that I'll have a premium over my shares, i.e good news.

The last two recent takeovers I witnessed, however, was not really straight forward. The two companies have recently take their takeover problem to The Takeovers Panel:

Allegiance Mining (AGM - I owned and recently sold) made an application to the Takeovers Panel in relation to the off-market unsolicited takeover bid for Allegiance announced by a wholly owned subsidiary of Zinifex Limited on 17 December 2007
Mount Gibson Iron Limited (MGX - I still own them) just recently also applied to the takeovers panel regarding the conditional sale by Gazmetal Holding Cyprus of Gazmetal's 156 million shares (approx 19.73% of MGX issued capital) to hougang Concord International. MGX seeking a declaration of unacceptable circumstances.

What is the Takeovers Panel?

The Takeovers Panel is the primary forum for resolving disputes about a takeover bid until the bid period has ended. The Panel is a peer review body, with part time members drawn predominantly from Australia's takeovers and business communities.

I suppose The Takeovers Panels' central objective is to ensure fair treatment for all shareholders in takeover bids.

In both cases above, especially at Mount Gibson Iron's case, there are some grounds and reasons to believe that the bidders were not treating their targets fairly. The sale of 19.7% holding in Mount Gibson from Russian billionaire Alisher Usmanov to China's Shougang would give Shougang and closely related group APAC a combined 39.9% stake without having to launch an offer for the company. Although the two Chinese companies claim they are not related, institutional shareholders believe Shougang's plan is a convert takeover avoiding the standard takeover premium. Smell any fish?

The AFG Drama

I haven't felt very comfortable this week, with the fact that Allco Finance Group (AFG) - one company in my investment portfolio - has been put into trading halt and subsequently suspension from official trading.

These events has been going for a week, and seems even longer as there are a lot of negative speculations and anticipations of what's coming. The Australian Financial Review has been having a field days, with many negative AFG related articles. Those who said how clever and genius the AFG directors are, now really put them down, with the headlines such as : AFG Dead, over and out!!

I bought AFG at $2.80 per share. The share price fell from its high at around $13 to as low as $1.70 (mostly during the subprime crisis) , so I thought it should be close to the bottom. But maybe I thought wrong.

The company has delayed their half yearly report, and it will due tommorrow. I suppose we will see what is going to happen tommorrow. There are some new rumours in the news today and did not seems to be all doom and gloom.

Over and out!

What is Capping ?

I tried to explain this term to my husband the other day. He's an engineer, with no finance background but has a mind of the sharpest sabre. I guess I didn't explain it well enough for him, as he thought what I said was a bit confusing (to say the least :)..)

So I decided to look up again about capping, as in some stock forum I read this term in nearly daily basis. Many posters on the stock forum said that the 'Capper' is at work when a share price is not performing as well as people would like, or failed to pass a certain price.

Here's what I can find more from my reading:

What is Capping?

According to one financial dictionary :

Capping:

The practice of selling large amounts of a commodity or security close to the options expiry date in order to prevent a rise in market price.
An attempt to keep a stock's price low or move its price lower by putting selling pressure on it.

Most of share traders or investors have perceived that definition number 2 was in play at one time or another, where a rather large amount of shares are put up for sale, just above the trading range, forcing impatient sellers to go beneath that price.

The capper, it is thought, then picks up those shares because his intent was never to sell the amount of shares up higher, merely to obtain more shares cheaper. Sometimes this is not the case, however, and a seller simply wants out and puts perhaps their entire holding up for sale at the one time.

The true test of a capper often comes about when his capping shares are threatened with being 'taken out' (i.e. someone thinks they are good value to buy). He then removes the shares - indicating there was probably never a serious intent to sell those shares in the first place. In other instances, we have observed that the capper is outsmarted and his shares are in fact purchased by someone else - usually a large buy order in one hit.

How to identify a capping?

Simply look at the market depth, the amount of sellers in the list and the obvious signs of 1 or 2 major sellers that have extraordinary sized share parcels sitting there. Also look at the price points above the perceived "capper" and see if there are any more large parcels on offer by a single seller. Then look for on the buy side to spot any "proppers" that are there to hold the trading gap in share price forcing the buyers and the sellers to exactly the same price level.

Can they work for us?

Capping can work to our advantage, if we wish to obtain more shares. By forcing impatient sellers to move to a lower price, we can, in fact, enjoy the benefit of the capper's work and sit in the queue waiting to collect those shares.

Cappers can also give us the insight to the favoured purchase price of the stock for accumulation (assuming the capper is real). When the capper have had their fill they will disappear, but again, they have a lot more patience than we do. If the share price is being held and the volume is increasing then in might be a buy. This is because the cappers may be able to contain the price but it will be impossible for them to hide the volume. Sentiment indicates that rising volume and accumulation with a stagnant or held share price is the perfect time to buy.

Parts of this article is a courtesy of tangrams and kse3137 of hotcopper

Allegiance - Zinifex Takeover Battle

Disclosure : I sold all my Allegiance shares yesterday at $1.045 per share, and bought Tassal Group (TGR) with half of the money at $3.35.

The first takeover I've experienced, and it was a bit messy!!

I bought some Allegiance Mining (AGM) shares few months back at around $0.69 per share. I was interested in the story and was eager to wait for their first production on the first quarter of 2008. Then came along Zinifex with their two tier offer of $0.90 and $1 per share. It sent the share price up to around $1.05 and there was so much excitements, at least at the start.

Now, the takeover battle between Zinifex and Allegiance Mining continues with more arguments:

1. Starting from Zinifex bid to Allegiance, Zinifex (ZFX) has offered $775 million for AGM.

This represents 41% premium on AGM value at the time of the bid.

2. AGM management told Zinifex to 'nickel off'

3. AGM lost $7.9 million on market punt.

Zinifex told the media it was calling for Allegiance to fully disclose its alleged trading in small capitalisation stocks and a $7.9 million loss in leveraged share trading.
The AFR said Allegiance has been "in the business of punting tens of millions of dollars of shareholders' money on highly speculative stocks".
The report said the trading came undone during last month's horror day on the stock market, dramatically dubbed "Black Tuesday", January 23, when world markets fell sharply.

4. Zinifex's two weeks bid extension

On the morning of 8 February, Allegiance publicly expressed its concern that the market was not informed about Zinifex's intentions and invited Zinifex to inform the market, but Zinifex made no public statement until approximately 7.30pm when Zinifex advised the market that its offer had been extended. This was of course some 30 minutes after the offer would have closed if it had not been extended

5. Lion Selection (LST) 'accidental' acceptance of Zinifex bid

AGM said yesterday that it lodged a complaint about ZFX's tactics in extending its bid last Friday at the last minute. It claimed yesterday that Lion Selection, which accepted the ZFX offer, 'had concerns' about the situation.

6. No third party is currently conducting due diligence or in negotiation with Allegiance.

Allegiance was advised that the relevant third party had ceased its due diligence and would not be submitting a proposal as it was unable to comply with the timetable and deadline that Allegiance had required. As a result, no third party

7. AGM has taken the matter to the Takeovers Panel

Allegiance Mining NL (“Allegiance”) advises shareholders that it has made an application to the Takeovers Panel in relation to the off-market unsolicited takeover bid for Allegiance announced by a wholly owned subsidiary of Zinifex Limited (“Zinifex”) on 17 December 2007

8. Just read at the AFR today that Zinifex likely to pull the bid

........
.......

Apparently, takeover can be pretty ugly :)

Market Manipulation

The more I look at the share prices these days, the more I am convinced that there are some form of market manipulations out there. It might not be in a big, gigantic manipulation form, but they DO exist at some extend.

I found a nice reading yesterday from the NZ Ministry of Economic Development website regarding market manipulation.

Basically, there are of two main types of Market Manipulation Practices :

1. Disclosure based manipulation.

This occurs where a person disseminates false or misleading information which has the effect of misleading other participants about the value or trading volume of a security.

An example is where a person disseminates unrealistic, unsubstantiated or incorrect data, projections or evaluations. The manipulator then uses the demand generated by the false information to sell their own shares. This is sometimes known as "hype and dump" or "pump and dump". Sound familiar?

2. Trade based manipulation.

This is the buying or selling of a security by a person which misleads or deceives other participants about the value or trading volume of that security.

Trade Based Manipulation category includes :

Matched orders -- A matched order occurs when a person buys a security with a low turnover and subsequently places contemporaneous buy and sell orders for that security. These orders will be for substantially the same number of securities at substantially the same time and at substantially the same price. The aim of this is to convey an appearance of renewed interest in the security to attempt to induce others to buy the security. The intention is that enough new investors are attracted by the apparent increase in activity so that the price of the security rises. The manipulator is then able to sell the security and make a financial gain.

Pools -- essentially the same type of practice as a matched order, but involves more than one person colluding to generate artificial market activity.

Wash Sales --A wash sale involves a person, either directly or indirectly, being both the buyer and seller of securities in the same transaction, that is there is no actual change in ownership of the securities. The manipulator will undertake frequent trades hoping to attract other investors who note the increased turnover in the security. The manipulator aims to gain financially through creating a small price differential between the buy and sell rates of the security in question.

Runs -- A run involves a person creating activity in a security by successively buying (or selling) that security. The intention is that the increased activity would, in the case where the person is buying, attract others to buy and push up the price. At that point, those organising the run would then attempt to sell out at a financial gain. This is sometimes known as "pumping and dumping."

Corners -- A corner is where a person buys up a substantial volume of a security knowing that other market participants will be forced to buy from him at a higher price. An example of this would be where the other market participants hold short positions in the security which must be settled. A similar practice is the "abusive squeeze" where a person takes advantage of a shortage in an asset by controlling the demand side and creating artificial prices.

Market Stabilisation -- This involves trading in a security at the time of a new issue in order to prevent a decline in the price of the security. This would normally involve issuers, underwriters or those participating in an offering of securities trading to avoid the failure of the offering.

Marking the Close -- Marking the close is making a purchase or sale of a security near the close of the day's trading in an effort to alter the closing price of the security. This might be done to avoid margin calls (when the trader's position is not self-financed), to support a flagging price or to affect the valuation of a portfolio (called "window dressing"). A common indicator is trading in small parcels of the security just before the market closes.

Parking and Warehousing -- These involve a person holding shares which are actually controlled by another person whose identity is not disclosed, sometimes through nominee or fictitious accounts.

Computerised Program Trading -- This is a strategy mainly used by large institutional investors. It uses computer programs which determine the timing of transactions, for example if there is a discrepancy between the price of a futures index and the shares included in the index. It is likely to influence the price of securities, but may not be caught by market manipulation laws as it is not likely that an element of intent to induce trading or to mislead others could be proven. Trading programs themselves are not manipulative.

Short Selling -- Another trading practice which is sometimes considered manipulative is short selling. Short selling is defined as the sale of securities where, at the time of sale, the seller does not own the securities. Short selling is used when a person considers that the price of a security will fall. A person will make a profit if he sells at the current price and purchases later at a lower price.

Extracted from the Ministry of Economic Development - New Zealand's website

REX - Manipulated ?

Hey... that's naughty!!

That was my first reaction this afternoon when I saw one of my share's price (REX) went down nearly 15% with a very volume traded. Last look, there was 10 (yes, 10 singe shares) ask (selling) for $1.25. On the second sell position was some thousands of share asking for $1.35.
So, the share price was driven down more than 10 cents for a very small volume.

How they play this game?

I noticed that small caps companies go down more in bear markets than their large cap rivals. I believe this is part of the reason. Not because they are inherently worse stocks or that their valuations are more inflated but because they can kill the price momentum with just a few 100 share blocks.

Trade Based Manipulation

I read the other day about share manipulation. I believe this one is called Trade based manipulation (there's another one called Disclosure based manipulation).

Trade based Manipulation is the buying or selling of a security by a person which misleads or deceives other participants about the value or trading volume of that security.

(OMG!!.. The indicative price fro REX is now $1.40, far cry from 1.22 a few minutes ago..I should have bought some, but a bit nervous about it as I have quite a large cash invested on REX already... oh what a mistake!!)

Sorry, I have to go... will be back with the manipulation topic.

Margin Trading

Point to consider: Investing using borrowed money is NOT a good idea!!

We heard and read a lot about margin trading these days. These days, unfortunately, it often blamed or related to a drop in share prices. The recent Allco Finance Group's drop in share price because of their excecutives failed to fulfil margin call was one of thye example, and so was the Tricom (broker) fallout.

Although not lucky enough to escape from the carnage in the ASX, I felt quite lucky that I own all my shares. They all are bought in cash with my own money, and that way, I have full control of my stocks.

What is Margin Trading?

Reading from some source, basically there are two ways to purchase stocks:

The buyer can pay the purchase price in full
Using a margin account.

In a margin account purchase, the buyer pays a portion of the purchase price and the broker lends the difference. The buyer in turn pays interest on the broker’s loan in addition to the usual commission fees. For collateral, the broker holds onto the stocks.

Margin is a high-risk strategy that can give you a big profit if executed correctly. The negative side side of margin is that you can lose a lot more than your initial investment.

Investopedia wrote that buying on margin is borrowing money from a broker to purchase stock. This way, margin trading allows you to buy more stock than you'd be able to normally.

Buying on margin is mainly used for short-term investments, because borrowing money isn't without its costs. You have to pay the interest on your loan. The interest charges are applied to your account unless you decide to make payments.

And What is Margin Call?

You would receive a margin call from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be forced either to deposit more money in the account or to sell off some of your assets.

If for any reason you do not meet a margin call, the brokerage has the right to sell your securities to increase your account equity until you are above the maintenance margin. Even scarier is the fact that your broker may not be required to consult you before selling! Under most margin agreements, a firm can sell your securities without waiting for you to meet the margin call. You can't even control which stock is sold to cover the margin call.

Source: investopedia and other sources.

Management Buyout

Reading the news of Allco Trading Halt this morning, this term (management buyout) catched my attention. Some guys in the stocks discussion board suggested that management buyout is a possible trading halt reason.

Allco did not really specify the reason for their halt, so I guess whatever it is (the reason), we will have to wait for the unnouncement on Wednesday.

Back to Management Buyout.

What is a Management Buyout? Wikipedia stated that A management buyout (MBO) is a form of acquisition where a company's existing managers acquire a large part or all of the company.
In many cases the company will already be a private company, but if it is public then the management will take it private.

For more reading: http://en.wikipedia.org/wiki/Management_buyout

What to Do in Recession?

My share investment is getting out of control. I transfered some more money to my trading account in a hope to pick a bargain, but unfortunately it still has not reached the bottom.

I am wondering, what is the best thing to do in time of recession (especially with our investment) ?

Reading some financial advises on the net, basically there are few things you can do.

There are some suggestion of shorting stocks, which was out of question for me...I don't short stock, period! :), so that leave us to few more options, which are:

1. Don't sell your stocks. You sell when the securities are up. You buy them when they are low.

2. Invest for a long term, don't day trade.

3. Be patient

OMG, isn't it so text-bookish, but I suppose I don't have any other choice..