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Varchild2008 (85.34)

DO NOT *fear* Share Dillution!



June 29, 2009 – Comments (6) | RELATED TICKERS: F

Ok so... I sold my FORD stake and threw the cash at (DPS) and (EAG).   Beverage + defense stocks a few weeks back. 

That was around $5.89.    I did this because of reading an article about C.E.O. Mullaly thinking about doing more Share Dillution to clean the balance sheet.  Remember that article?  That article scared me....  Luckilly though I discovered that Share Dillution doesn't mean a thing!

I quickly threw cash at FORD last week Friday to jump back into the stock.

Many articles are printed and published regularly to get investors scared about Share Dillution.

Last year my biggest mistake of my investment career was dumping (FEED) because of share dillution.  Wow! Was I wrong... Share price has recovered Quintuple ever since the SPOOK SCARE over share dillution.

How many other companys have had their stock prices escalate after the short term drop over Share Dillution Spook Scares?  How about nearly the entire Financial Sector.   Everyone thinking Bank of America should still be a $1.00 or less stock due to dillution is forgetting something...

I've learned that SHARE DILLUTION.....IS.....NOTHING.....TO BE....AFRAID OF!!!

Look at your investment.... If you believe the company will survive the recession and grow stronger and stronger as the days, months, years go on... Then the short term OH MY GOD Share Dillution is meaningless and you shouldn't bother fretting over it.

Really... When it comes to share dillution on my (FORD) stock.... from now on the only thing on my mind is..."How can I participate in the secondary offering?"

P.S. Ford reports strongest month in sales since Sept. 2008!  Ford reports a REBOUND!

P.P.S.  Why doesn't share dillution matter?  Because the future of a strengthening company is a future of SHARE BUYBACKS that reverse the Past's share dillution.   Share dillution This YEAR is no big deal when you predict Share Buy Back next year or the year after.

6 Comments – Post Your Own

#1) On June 29, 2009 at 2:31 PM, finabuddy (84.66) wrote:

so what you really mean is dilution does matter, but not to you because you can see the future. And share dillution is something to be afraid of. Why do you want to participate in the secondary offering? its because your ownership is dilluted, and the only way to prevent it is to buy more shares.

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#2) On June 29, 2009 at 2:54 PM, nottheSEC (81.34) wrote:

In my humble opinion share dilution is too risky a proposition.

1)Be prepared for the market's initial reaction to be often much greater than dilutive effect.  

2) Beware of the how and why of the secondary offering. Is it last resort to debt? Is the offering priced lower than today's share price?  

 You can't win unless you re-enter a quarter or so down the line at less than the dilutive price. To me keeping a diluted share is  tanatamount to keeping a $100,000 house at the $80,000 forclosure price. If the house is worthwhile I will rebuy at the foreclosure price or seeking another house.

 Again IMHO and real life experience.      

All best...J

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#3) On June 29, 2009 at 4:24 PM, Varchild2008 (85.34) wrote:

The dillutive house can rebound in price though and many analysts have been anticipating a rebound in housing prices eventually...

I am not going to be the pessimist here on Share Dillution...especially when it comes to companys showing signs of improvement.

FORD is a great example cause the whole "CASH for CLUNKERS" bill hasn't yet past into law and we are seeing a recovery... a recovery without the Government's help? whoda thunk?

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#4) On June 29, 2009 at 5:04 PM, nottheSEC (81.34) wrote:

The dillutive house can rebound in price though and many analysts have been anticipating a rebound in housing prices eventually...FORD is a great example cause the whole "CASH for CLUNKERS" bill hasn't yet past into law and we are seeing a recovery

First If I had 20 stock on a list of probable turn-around stories Ford would be on it. That list though would have to be attractively priced to overcome the much higher risk factor. The point being that Ford will rebound but If you got in at $2-6 that a fair price than $9+ close on June 29,2007. So you would have to see Toyota, Honda and other better companies coming and believe in a Ford so much that you would average down. A risky proposition no? I thought the Focus and Hybrids where great 2-years ago. Did not think so 3-4 years ago when I thought all they had where trucks.

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#5) On June 29, 2009 at 5:25 PM, Varchild2008 (85.34) wrote:

I came in at $5.07.... sold at $5.89 =  PROFIT!

Came in at $5.80.....   Ford sits at $5.78 currently but intraday it was as high as over $5.90. least Intraday I've already seen a profit on a stock that is highly dillutive... gee?

And (FEED) was my other example... (BAC) my 3rd example.

All 3 stocks experienced share dillution and it was like Water over the dam... nothing to sneeze at.... Look out ABOVE!!! Here comes a SKY ROCKETING   Share price!

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#6) On June 29, 2009 at 6:32 PM, jahbu (80.32) wrote:

It all depends on what they do with the money Varchild.  If  an oil exploration company dilutes it's shares to raise 100 million. Uses the cash to drill a big hole and a bunch of black gooey stuff pops up,  well then the dilution pays off.

On the other hand, management might take that 100 million from stock dilution and fart it way.  Or drill a dry hole.

So dilution could be a good thing or a bad thing, depending on how the management uses the newly acquired capital.


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