Forum Archive Index - October 2001

["Viewpoint ." <viewpoint_@hotmail.com>]

An investment in a company by way of share ownership is no more than 
speculation on the future performance of that company, in a game played 
against other speculators.

Because very little, if any, of this invested cash goes directly to the 
company any investment in the share market is essentially no different from 
picking horse 3 to win race 4 (or whatever form of gambling tickles your 
fancy)

The difference being you read share market form with P/E ratios, yields, 
growth rates and all those sort of things and your sharebroker is no 
different from your local bookie or the TAB.

I said above that very little of this invested cash goes directly to the 
company involved.  Except for capital raisings through the likes of public 
issues and the occasional rights issues this is true. Over the past few 
years, with many share buy backs, there probably has been a net flow of 
equity capital out of the market. This cash has joined the other cash 
floating around in the market as speculative cash betting on the future 
fortunes of companies.

As little of the invested cash actually goes to the company any emotional 
attachment to the company is based on how they are going to perform in 
future (just like hoping that horse 3 in race 4 will win) and not on a "I 
own a part of that company" basis.

Only those investors who have made an actual investment in the equity 
capital of a company have a right (real or emotional) to say they own part 
of a business.

One case in point is Air New Zealand. There were many investors in Air New 
Zealand who prior to November last year were speculating on the future 
prospects of the company.  However most of these investors did front up with 
a total of $285M in the rights issue. That money went to Air New Zealand and 
as such these investors can claim to have a real ownership interest in the 
company.

It is only those investors who can rightfully say that they ‘own a part of 
Air New Zealand’

That added emotional attachment (of real ownership and not just a 
speculative punt on the future) probably explains, as has been reported in 
the press, what sharebrokers call the 'stupid' behaviour of the small 
investor in the recent large buy up of Air New Zealand shares.

Maybe buying an interest in Air New Zealand at $1.50 previously has made 
them think that a further interest at 30 cents odd is a bargain - they see 
it as an opportunity to increase their ownership of Air New Zealand.

Or maybe it is a set of new punters speculating on the future fortunes of 
Air New Zealand - just like betting on horse 3 in race 4.

All I can say is that horse 3 in race 4 is likely to have a better trainer 
than those preparing Air New Zealand for the future. But then did the racing 
editor of the NZ Herald pick horse 3 in race 4 as a certainty like Helen 
Clark picked Air New Zealand in the Recovery Stakes.


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