The Right Rights Strategy?!
By Dianxiang | September 16, 2017
Do you check 4D results every weekend hoping to strike 4D? Most of the time you will be disappointed. It is not because you are "unlucky", it is probably probability against you. Even then I do buy 4D sometimes just for the thrill of it.
But fear not, Mr Mouse-tache is here to the rescue to give you both the thrill and a good chance to win! On winning 4D?! Oh no no he is not referring to 4D. He is going to introduce the right Rights strategy to win!
Before we dig further into his strategy, let's have a brief introduction on Mr Mouse-tache.
His favourite quote is
"Opportunities wait for no Man (Mouse included)!"
And by the way he is a mouse, a young and energetic one who loves the thrill of snatching the cheese from the mousetrap without being caught. He is always scanning the landscape for the right (mousetraps) opportunities.
Mr Mouse-tache has observed that when a company initiates a Rights issue, there is an opportunity to make some money. A Rights issue comes about when a company wants to raise money to expand her business or for some other purposes. The company offers shareholders additional stakes in the company via the Rights in exchange for their money. The company will usually price the Rights at a low price to attract the shareholders to subscribe to their Rights entitlement. Still there will be some Rights that have not been taken up by the shareholders, these are the "excess" Rights.
Mr Mouse-tache's eyes sparkle at the mention of excess Rights! This is exactly where the key lies! The strategy is simple.
(1) Purchase some company shares from the open market
(2) Apply for the Rights entitlement
(3) Apply for the excess Rights
(4) Sell all the shares to make a profit.
Simple right? But there are some pointers to take note.
Firstly, there is a need to check whether the particular Rights issue allow excess Rights application. This is because not all Rights issues have this feature.
Next, apply this strategy only to companies whose shares you don't mind keeping. This is important in case you get insufficient excess Rights to turn a profit and you have to hold on to the shares. Dividend paying companies such as REITs are good places to start the hunt.
Finally, it is usual for the stock price to drop after a Rights issue announcement. The reason is selling pressure from existing shareholders who do not wish to cough up more money for their Rights entitlement. Capitalise on this dip in price to snatch some shares. This will increase the chance of success!
Mr Mouse-tache is now going to start his hunt for the right Rights to buy, what about you?
You can follow my instagram account (@mister_good_sg) for more timely alerts on the right Rights to buy.
Past Rights Issues Participated by Mr Mouse-tache
Keppel-KBS US REIT
Rights Announcement Date: 23 Oct 2018
Closing Price on 22 Oct 2018: US$0.68
Bought 900 units on 24 Oct 2018: US$0.66 (S$833.12)
Allocated 265 entitlement units @ US$0.50 (S$185.38)
Allocated 2535 excess units @ US$0.50 (S$1754.22)
Total 3700 units @ US$0.539 (S$2772.72)
Opening Price on 27 Nov 2018 (First Day of Listing of New Units): US$0.56
Position Open: Keeping due to high dividend (>10% yield)
(21 Dec 2017 to 06 Apr 2018)
Bought 27100 units @ $0.60 (Closing Price on 20 Dec 2017, Last Day Before Rights Announcement)
Allocated 9033 entitlement units @ $0.25
Allocated 2467 excess units @ $0.25
Total 38600 units @ $0.496
Sold 38600 units @ $0.545 (Closing Price on 06 Apr 2018, First Day of Rights Listing )
Winning >= $1800 ($1 Big 2nd Prize + $1 Small 3rd Prize)
Capitaland Commercial Trust
(21 Sep to 27 Oct 2017)
Bought 6400 units @ $1.695 (Closing Price on 20 Sep 2017, Last Day Before Rights Announcement)
Allocated 1062 entitlement units @ $1.363
Allocated 838 excess units @ $1.363
Total 8300 units @ $1.619
Sold 8300 units @ $1.68 (Closing Price on 26 Oct 2017, First Day of Rights Listing)
Winning >= $430 ($1 Big Starter + $3 Big Consolation Prize)
Manulife US REIT
(02 Sep to 26 Oct 2017)
Bought 2500 units @ US$0.965 (Closing Price on 31 Aug 2017, Last Day Before Rights Announcement)
Allocated 1025 entitlement units @ US$0.695
Allocated 275 excess units @ US$0.695
Total 3800 units @ US$0.873
Sold 3800 units @ US$0.91 (Closing Price on 26 Oct 2017, First Day of Rights Listing )
Winning >= $60 ($1 Big Consolation Prize)