Saturday, May 27, 2006

Thoughts on the IR - Past, Present and Future 1 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)
Well, I do have some stock thoughts for today after all. How could I miss out the awarding of the Marina Bay casino oops IR licence, given that it has been the subject of so much trading attention on Friday afternoon of those companies involved? Let's divide my random thoughts on this into Past, Present and Future, along the lines of Charles Dickens' "A Christmas Carol".

The Ghost of the Past
What is the cost of gambling on who wins the Marina Bay IR? Capitaland and Keppel Land are the two prime beneficiaries of the IR premium that seems to have been incorporated into their stock market prices ever since PM Lee announced on TV that we're building not one, but TWO, casinos oops IRs. For example, Capitaland's share price has exceeded the analyst consensus RNAV, with IR incorporated, of ~$4.20 in the run-up to the Marina Bay IR announcement.

Why did investors/traders still persist in bidding up the price of both stocks, and Genting's + Star Cruises' to a lesser extent, on Friday afternoon, when most would have acknowledged that the IR premium being already priced in both stocks meant downside was greater than upside? There were some who bought call warrants in both stocks, the so-called basket-betting approach (getting at least one of the two correct). Well the Ghost of the Past is about to catch up with them, as a black swan has emerged the victor in the contest.

The Ghost of the Present
There is an oft-quoted psychological experiment where it was found that people rather much preferred to lose less than other people than win less than other people, even though the absolute financial benefit was clearly better for the latter case. Subsequent to the IR announcement, people are starting to speculate on the collapse of the "two lands" and how those who bought them will be killed on Monday. There are online threads to let people vote how many cents the stocks will drop. A certain glee shared by all those not vested in the "casino stocks".

Certainly the time spent on gloating over others' misfortunes might be better spent focusing on one's stocks and picking out promising ones in the wake of the falling tide that has affected all stocks. That is more productive. Please exorcise the Ghost of the Present, otherwise known as the Ghost of Ill Will.

The Ghost of the Future
And why do people insist on punting before the IR announcement on potential winners, and again after the IR announcement on impact on the losers plus the next (Sentosa) IR winner? At best, short-term trading is a 50-50 game because you are guessing at market psychology and anticipating price movement. The percentage of people who get it right is the same as the percentage of samples occurring after (or before) the median sample in a statistical distribution. Make no mistake, there will be a gap-down on all loser property counters on Monday, but this will benefit only those who bet against these counters last Friday. After that, further intra-day (or intra-week) price movements is a game of dice. As for Genting, opinions are split: either a non-GLC-biased decision process favours its Sentosa bid, or a situation where both GLC-consortium losers bid with renewed vigour for the Sentosa site threatens Genting's bid further; it's another coin toss.

Coupled with the potential issue of overbidding for both IRs arising from the observation that the government went for the highest bid (Las Vegas Sands' $5B-plus) for the Marina IR, this constitutes the Ghost of the Future, where neither the IRs nor the investors/traders betting on them make any money (or indeed, lose big money).

(1) A Christmas Carol: A Play Adaptation (Appendix H)





Look into the future.

2/09/2014 11:03 AM  

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