Investing word of the day: Stock Rights Offer

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source: http://thismatter.com/money/stocks/rights-offering.htm

We have seen some stock rights offering lately and probably you are scratching your head asking what is a stock right anyways?

I got this this definition and explanation from http://www.answers.com/topic/stock-right

Privilege giving current stockholders the first right to buy shares in a new offering, thus maintaining their proportionate ownership interest; also called Pre-emptive Right. Suppose the investor owns 3% of XYZ Company. If the company issues 5000 additional shares, the investor may receive a stock rights offering-a chance to buy 3%, or 150 shares, of the new issue. This right enables the investor to purchase new common stock at a subscription price for a short time, usually no more than several weeks. The subscription price (exercise price) is lower than the public offering price of the stock. A single right is the privilege applicable to one old share of capital stock to purchase a certain number of shares of new capital stock. When the rights are exercised, the issuing company makes a journal entry to record the proceeds received, and the common shares are issued.

In layman's term(as much as I can :) )

Normally a company has to options to raise capital: through a debt instrument by issuance of a bond or in simpler terms "uutang" or through issuance of additional shares which is either coming from sale of unissued share or sale of new shares requested from SEC(Securities and Exchange Commission).

Stock rights, as defined above, is privileged given to current holders of the stock to buy additional shares at a lower or discounted price to preserve the percentage ownership of the current holders. So for example right now SMDC has a stock rights offer  of which the ratio is 1:3 meaning one stock right for every 3 SMDC stock currently held. Such has some added rules for current stockholders to avail such offering. 

source: http://www.smdevelopment.com/smdc/index.php?p=684

Now what good can one get from stock rights?

The very first one is that one can avail of the allocated shares at a discount as set by the terms of the stock right offer. If you are a significant shareholder of the company you will be able to preserve your share percentage thus still having the control even after an increase in capital. 

A reminder though, when exercising or using your stock rights always read the terms and conditions. In order to trade newly acquired shares through stock right one must comply like the stock  must be fully paid and that it is traded after the listing date.

The Stock market explained in simple terms

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Many have already asked me about the Stock Market, Stock trading, and stock investments. And many really is confused about it. Some say it is only for the rich and affluent people or thus who are learned men and women in the business district of Makati City.

But your wrong. Stock investing or trading is for everyone. In the Philippines one can open a stock brokerage account with the nine accredited brokers allowed to carry on online stock trading. Of the nine 2 which are also the stock investing arms of a bank, First Metro Securities of Metrobank (have no maintaining balance) and BPITrade of BPI(requires a 500 pesos maintaining balance) according to my friend Jerry who has both accounts to maximize the potential of stock trading in the Philippines.

So how will a layman or a normal Juan or Maria understand the stock market and stock investment so that the Filipino population will not be afraid to try investing in stock in the Philippines?

 source: feudart.com

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 source: aileenapolo.blogspot.com

I have two analogies that I always use. The first one is the one I use  to explain to a friend what is a stock market in general. As the name says it is a market. So I want you to imagine yourself in the middle of a wet market or probably imagine yourself walking in Divisoria. What would you normally see? I guess you would see at least two types of people there. One are the buyers like you and second are the sellers who keep on doing all sorts of ways to get your attention. Why are you in Divisoria? You are in Divisoria to buy something at a bargain. You might be able to buy the same item in SM Department stores or in Cubao but at a higher price so you go to the market like Divisoria. 

You went to Divisoria to buy, same as you going to the Philippine stock market to buy. The only difference though is that instead of you buying stuffs, in a stock market or bourse you buy shares of stock of a company. And you buy it only at a bargain. Who in the world would buy a kilo of mango for 10,000 pesos that would be insane right. On the other hand you also sell stocks so you take the place of the sellers. You will always be on the look out for potential buyers by making your voice heard by giving a buyer a good price on your stock.

Now one more thing, in the wet market sellers and buyers interact directly but in the stock market a buyer or a seller interact through a broker which is accredited and certified by regulatory bodies. In a way it is a safeguard to protect the interest of participants in the stock market.

Another analogy I use is the bouncing ball. The stock market is like a bouncing ball. It goes up and down. It is never steady. This analogy explains the theory of Supply and Demand. When demand for a stock rises a rise in price is also seen. As a ball is given force, the force given to it reflects by the height it goes. When the ball is way way up the tendency is for it to go down  losing the upward force. The ball's weight becomes the indicator that the market is overbought making the ball heavy thus gravity pulls it down. When all the stocks are bought it is normal for those who bought it to sell at again so as the price go down they try as much as possible to take profits by selling their stock holdings before it reaches their cost.

And as the ball touches the ground it bounces again thus continuing the cycle. So when stock prices are on the rise investors like you and me try to buy it while it is still low to profit when it peaks and before it goes below our cost. When stock prices starts to go down after enjoying a high price we wait for it to reach the bottom and buy stocks when it is about to rise again.

Who is Gus Cosio

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An excerpt from Gus Cosio says so

Gus is a consultant in one of the Philippines‘ leading investment houses.

Having worked with global investment firms in Asia since the 1980s, he has extensive experience in the region’s financial markets.

Now based in Manila, Gus focuses on Philippine investment markets – stocks, bonds and foreign exchange.

Understanding that all markets are interconnected, Gus constantly follows the regional and international markets, hoping to bring to his readers a clearer picture of the Philippine markets in relation to the larger, global scheme of things.

So your wondering...if you are not familiar in the stock market, who is this guy?

Gus Cosio writes his personal opinion regarding the local stock exchange. His blog, Gus Cosio say so, has been quoted by some newbie and well established investors as accurate. His experience as consultant in various brokerage firms not only in the Philippines but abroad as well makes him an authority in the stock market. He believes that the Philippine Stock Exchange also follows other stock exchanges the likes of the New Your Stock Exchange, Hang Seng, Kospi, Nikkei, and other European markets.  

To read more on Gus Cosio's commentaries go to Gus Cosio says so