Monday, March 16, 2015

Why I refuse to advise people on shares

Not that I am qualified to do so, but in the land of the blind, the half blind rules.

A year ago, I helped a friend to sell his rights to buy shares based on his shareholding. It was all his decision and I accompanied him just to go through the procedure of selling via his remisier. He had not dealt with him for years. It was over within minutes and I could have waited for him in the car instead of his paying Rm3 per entry at the car park.

Now that the share price has gone up substantially, he loosely commented about having lost out Rm20,000 for having sold his rights! It was an exaggeration based roughly (mental calculation) on 5 lots x Rm4 which is way above his entitlement of 3600 shares and the current price of Rm3.75. He did not take into consideration the cost of taking up the shares plus the proceeds from the sale of rights at all! Not a nice feeling on my part, is it?

I had to work out how much he actually lost out so that he is not unduly affected by misconception.

Foregone: Sale proceeds from rights to subscribe 3600 shares at Rm1.00: Rm3,600;
Cost of taking up 3600 shares @ Rm1.80: Rm6,480; Total costs Rm10,080.
Compared with Rm13,500 (3,600 x current price Rm3.75) it shows a loss of Rm3,420 for not taking up the rights.

This brings to mind the thankless task of remisiers when they call up their clients to ask if they wanted to buy or sell shares. Sometimes, a client might be busy and did not bother checking share prices daily and it would have been such a pleasant surprise to know a share price had risen beyond his expectation. But because his remisier called, he could have been tempted to sell instead. Then when the share price rose substantially soon after, he would comment (not blame) that if only his remisier did not call he would have made much more!
 

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