READ!
lowtrade Member Level Wednesday, 04/04/12 09:32:12 AM
Re: Johnstown post# 30250
Post # of 40094
Worth a read.
This is a post on a subject I haven't covered in sometime.
No keep posting. I was not picking on you. I really didn't understand why so many message board posters, not just you, say " diluting is happening, pulling the stock price down".
You did a great job explaining what you were thinking and why you thought that. Thanks, I now understand the logic in the statement.
Now I see it's a problem with understanding terminology. Dilution does not take place when M&Ms move stock selling at bid into or buying at ask out of the market. Those shares are part of the OS and free trading. They are not new to the OS, they are new to the days trading. Where they come from is another subject.
But the logic is correct. Flooding the opposite side of the bid/ask direction, does stall price movement in either direction. It is one of many tricks M&Ms use to control direction. But it is NOT dilution.
Dilution is when the company moves treasury shares from the AS (authorized shares) to the OS (outstanding shares) or tradable inventory, for cash investments in the company. This means there are more shares at the same market price and reduces the size of the EPS. It doesn't reduce the price or value of the stock. But many pennylanders think it does.
Thats where I thought everyone got "diluting is happening, pulling the stock price down". When actual dilution doesn't change price, it changes EPS. Creating loss in company value, not stock value.
As you can now see, dilution does not occur when M&Ms trade opposite to price trend. I don't event think there is a name for that, other then manipulation, which is what it is. But it has nothing to do with dilution, and dilution has nothing to do with price. Mathematically
Understanding Dilution and the OTC, is one of my pet peeves. Because OTC retailers think big boards, when they are on the Bulletin boards. Hardly 1 in a 1000 OTC companies have an EPS to effect. LOL, so dilution can't effect their company value it the first place. Whats the value of no earnings, thus no EPS.
But the value of more cash to a startup is huge! It gives them the ability to attempt to grow. Without the cash it can't. So logic says, the retail herd should be happy about dilution. After all, they want the comapny to grow don't they.
Na, they think: I heard some where dilution is bad. So I hate diltution. When on the OTC, dilution is the best news one can hear. Not only does it give the company a chance at growth. It doesn't effect their EPS value one bit, they have on EPS to effect. Plus every time VCs get there hands on large amounts of shares, they buy a run, we can trade for profits.
So dilution is a win company, win Venture capital firm, win educated pennyland trader, on the OTC. The only negative is on long & strong retail who holds to long, for the wrong reasons. Everyone else is happy as chit about it. LOL
This whole subject changes when discussing big board companies. With investors basing their investment decision on earning. There dilution can be more negative, then positive, for the short term.
Dilution has to do with raising cash for growth also, causing smaller Earning Per Share and thus perceived (NOT actual) loss in company value. But because the cash recieved for the shares, go into the company books as cash assets, until used and shifted around in the accounting process. One never knows if the dilution is really bad or good, until management uses it and succeeds in company growth or not.
Johnstown
Again hit the board with all the comments and questions you want. We are not only here to teach, and help make money, but also to learn and correct mistakes.
AI
