Saturday, December 20, 2008

Free Float - A Necessary Consideration for SGDividends

We have beening bio-ing ( a.k.a Stalking) some companies which seem to be pretty under researched, boring , unexciting with super attractive valuations. But being the ever kiasee investors whose number one golden rule is to eliminate as much risk as possible first before even considering the potential returns ( basically we try to go for investments with the highest potential returns per unit potential risk), we are held back from clicking the " submit" button. So unless an earthquake hits or a childish adult comes along and push our collective fingers on the left button of the mouse to hit the "submit", we think we will give these companies a miss. ( anyway, seriously, adults are more childish than teenagers if you just open your eyes and ears to observe with an open mind.)

The reason is because of the free float of these companies which are very small. Singapore's regulation is for at least 10% of the shares of an SGX listed company to be free floated where free float refers to shares owned by persons who are not existing directors or substantial shareholders of the company. Free float shares can also be thought of as shares owned by the public and very generally speaking , such shares are highly illiquid with a large bid- ask spread. Being illiquid with a large spread is fine from a fundamental long term investing standpoint,nothing wrong with that, but we believe that adults, in addition to the capacity for love, kindness, are inherently greedy. Therefore, a concentration of power in a few individuals in a collective investment just reeks of a high risk investment, Ceteris Paribus! Based on logic, a low free float counter may also result in an investment considered a Value Trap.

Well, guess nothing looks interesting to invest in at the moment from our inexperienced perspectives. Here are some links, here and here which are related to the issue of free float size from our venerable and Hot Monetary Authority of Singapore.
" Investing is a Zero Sum Game " - Mr Siew Khim, Daniel SXXXX537E
Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

2 comments:

  1. What is the minimum free float you are looking at?

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  2. would think min 50% to 70% free float would be the optimum.

    It good that the directors or insiders have some substantial stake too for alignment with shareholders interest, though not too much to have an overiding say.

    Our opinion

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