Greetings,
Strategies for taking advantage of IPOs are;
1. Multiple applications,
Especially for IPOS with huge demand you can never go wrong in investing in these IPOs since there is usually a huge positive perception about the share prices going up since the value of the shares are under priced to attract many investors, so as an IPO investor you are guaranteed of at least a yield of 20% when you sell of your shares on the first day.
So now since many investors are investing in the IPO and there is a huge likelihood of oversubscription (the likes of Kengen, Eveready etc), how do I make sure I maximise the funds invested in the IPO- for example, you applied for Access Kenya at minimum- 5,000 shares at sh10. per share you end up getting a refund of shs41,000 and 900 shares, you sell on the first listing day at market and you get 900*shs.12= shs.10,800 which when you add to 41,000 to calculate the yield on total investment base you get a return on investment of 1,800/50,000=3.6% - you could have been better of loaning the money to your local business man who would have given you a return of 10% tops.
The strategy to use in this case is to open as many CDS accounts as possible i.e. you open one with your ID number, with passport, with your wife/husband (boy/girlfriend), your business, investment club, village group, your wife’s’/husbands’ business, your 3 cousins, 4 sisters/brothers as creative as you can be – you get at least 10 CDS accounts, now through these CDS accounts you can make one application per CDS account and you apply at minimum,
For example, for Kenya-Re make 10 applications costing shs. 190,000, an application of 20,000 shares, after the pro-rata you get lets say 9,000 shares so the refunds will be shs 104,500, then you sell the shares allocated for shs. 20 each (an estimate figure), this will make it shs.180, 000 if you add it to the refunds you get a total of shs, 284,500 a profit of shs. 94,500 with return on investment of 94,500/190,000= 49.74%
2. Shorting the market
So now since many investors are investing in the IPO and there is a huge likelihood of oversubscription (the likes of Kengen, Eveready etc), how do I make sure I maximise the funds invested in the IPO- for example, you applied for Access Kenya at minimum- 5,000 shares at sh10. per share you end up getting a refund of shs41,000 and 900 shares, you sell on the first listing day at market and you get 900*shs.12= shs.10,800 which when you add to 41,000 to calculate the yield on total investment base you get a return on investment of 1,800/50,000=3.6% - you could have been better of loaning the money to your local business man who would have given you a return of 10% tops.
The strategy to use in this case is to open as many CDS accounts as possible i.e. you open one with your ID number, with passport, with your wife/husband (boy/girlfriend), your business, investment club, village group, your wife’s’/husbands’ business, your 3 cousins, 4 sisters/brothers as creative as you can be – you get at least 10 CDS accounts, now through these CDS accounts you can make one application per CDS account and you apply at minimum,
For example, for Kenya-Re make 10 applications costing shs. 190,000, an application of 20,000 shares, after the pro-rata you get lets say 9,000 shares so the refunds will be shs 104,500, then you sell the shares allocated for shs. 20 each (an estimate figure), this will make it shs.180, 000 if you add it to the refunds you get a total of shs, 284,500 a profit of shs. 94,500 with return on investment of 94,500/190,000= 49.74%
2. Shorting the market
From past experience in the Nairobi Stock Exchange, Whenever an IPO is issued the market becomes bearish as the prices usually go down since investors sell shares they hold in the other counters in order to free their cash flows and invest in the IPOs.
Since you know that the prices of most shares will go down during the IPO in what is called shorting the market, you borrow shares from your stockbroker or friend or whoever and sell those shares then like some time prior to the IPO (a month and more) when the IPO comes you buy back those share and return them to their owner and you pocket the difference, for example, you borrow 10,000 shares of National Bank of Kenya whose price is shs. 48 per share, so you sell now assuming it’s a month prior to the closure of Kenya-Re IPO application then you sell immediately at that price you get shs. 480,000 you maintain the funds and wait for the price to drop during the IPO, so it drops to shs.39, you buy 10,000 shares at shs. 39 each you use shs. 390,000 and pocket the difference of shs 90,000 without removing any cash ( for this strategy to work you would have to borrow many shares which you will expose you to risks, but the more risks the more rewards- at least its better than DECI)
3. Longing the Market
A friend of mine once explained to me this logic, when you have lost shs. 50, 000 in a casino game, you have 3 options;
a) you walk away with your tail between your legs and accept defeat
b) you add shs. 50,000 to attempt to get back your money
c) You spend more than shs. 50,000 to try and get your money( probably shs. 100,000 and more)
What option would you choose, the option you have chosen says a lot about how you deal with your losses in shares, I would chose option c) since it increases the probability of getting back my money and more.
The same case applies to shares, only that it is less riskier than the casino game , look at it from this example, you bought 1,000 shares of Mumias at shs. 49.50 per share during the SPO spending shs. 49,500, so what do you do now because the prices have been going down ever since when the market became bearish.
Simple, you buy more shares at the less price given the market fluctuates and will eventually be bullish how much you spend to buy more of these shares will determine how faster you sell them- meaning, assuming you read this article 2 months ago and you had bought the Mumias shares at that price, since 2 months ago they were trading at sh. 26 per share you borrow a loan or you spend some of your own shs. 260,000 to get 10,000 shares which will lower the average price to shs. 28.14 per share( (260,000+ 49,500) / 11,000) then you sell now at shs. 31 per share you get shs. 341,000 from a total investment of shs.309,5000 a profit of shs.31,500 a profit where you had made a loss.
This is what is called longing the market and applies for IPOs since an IPO suppresses the share prices
So what are you going to do about Kenya-Re
You can share your experiences and give your comments by posting your comments by clicking the link below.
BE INFORMED
The Editor,
My Kenyan Money,
Alex Bunde
+ 254 725 906 473
mykenyanmoney@gmail.com
There is a tendency to think stock trading is cool if you're making money but morally corrupt if you're losing it. It can't be both. Is "good" defined by success?
When your broker asks, "How are you?" You say to yourself, "You tell me."
Disclaimer--------------------------------------------
This article is not intended to act as investment advice, when investing consult your investment adviser or feel write to the editor to be referred to one.
The same case applies to shares, only that it is less riskier than the casino game , look at it from this example, you bought 1,000 shares of Mumias at shs. 49.50 per share during the SPO spending shs. 49,500, so what do you do now because the prices have been going down ever since when the market became bearish.
Simple, you buy more shares at the less price given the market fluctuates and will eventually be bullish how much you spend to buy more of these shares will determine how faster you sell them- meaning, assuming you read this article 2 months ago and you had bought the Mumias shares at that price, since 2 months ago they were trading at sh. 26 per share you borrow a loan or you spend some of your own shs. 260,000 to get 10,000 shares which will lower the average price to shs. 28.14 per share( (260,000+ 49,500) / 11,000) then you sell now at shs. 31 per share you get shs. 341,000 from a total investment of shs.309,5000 a profit of shs.31,500 a profit where you had made a loss.
This is what is called longing the market and applies for IPOs since an IPO suppresses the share prices
So what are you going to do about Kenya-Re
You can share your experiences and give your comments by posting your comments by clicking the link below.
BE INFORMED
The Editor,
My Kenyan Money,
Alex Bunde
+ 254 725 906 473
mykenyanmoney@gmail.com
There is a tendency to think stock trading is cool if you're making money but morally corrupt if you're losing it. It can't be both. Is "good" defined by success?
When your broker asks, "How are you?" You say to yourself, "You tell me."
Disclaimer--------------------------------------------
This article is not intended to act as investment advice, when investing consult your investment adviser or feel write to the editor to be referred to one.
A CDS account is an account that you need to have to buy and sell shares.
ReplyDeleteWhat usually happens is, when you buy shares the shares are credited to the CDS account and when you sell they are debited.
The CDS account is an online depository account that was set up by the Capital Markets Authority and is known as - Cenral Depository System Control, once you have this account as an investor your buy and sell orders can be effected faster and coonveniently especially since most transactions are done through a computer system as compared with the open-outcry method that shares used to bought and sold, so witha CDS a/c you get a print out sent to you every month by the CDSC indicating all the transactions that were made on your account so brokers cannot trade with your shares and money illegaly.
SSAVY
Amusing article... Explores ethical issues and illustrates some silly jua kali investment strategies...
ReplyDeletePlease note that one could succeed with opening multiple cds accounts for earlier IPOs but not for Kenya RE because the allocation criteria incase of an oversubscription will depend on the amount one applied for. For Kemya Re it will be 1st a minimum of 100 shares then prorata on the amount one applies for.
ReplyDelete