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Traps of listed companies
Ripping off small investors (向下炒)
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NAV Defines as A proxy to estimate how much a share of stock is worth
NAV<Spot price Overpriced NAV>Spot price Underpriced
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Pitfalls and traps of NAV
Pitfalls I: Owners will not sell out their shares at a price below NAV value, say $1 Traps: Some capital-concentrated companies continuously sell the shares to pull down the share price, say from $0.9- >0.8->0.7…..
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Pitfalls and traps of NAV
Pitfall II: Considering the huge gap between NAV and spot price, investors think the stock is good even if the spot price keeps dropping Traps: Main owners will stop selling the stock at some point, say $0.25, so as to prevent losing control of the company, but doing something harming the investors instead
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Tricks usually adopted
When the share price is at the lowest point, say $0.25 Private placement: issue new shares, say @ $0.2, to non-current share holders. New buyers are usually agents or current owner’s relatives Gain the gap from $0.2 to $0.9!!!
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Ultimate Hit Privatization
Using a price a little bit higher than the spot price to compulsively buy back all the shares Use $0.3 to buy back the share that is worth NAV$1
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Practical case -8079 BAL LTD (變靚D控股) Private placement or rights issue
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Practical case- 8395 BLU SPA-20000 Privatization
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Features of such stock Spot stock price is well below the NAV even in superb bullish market Shares are unreasonably concentrated on a single party or some groups of families
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The end
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