Replies to post #521013 on Fannie Mae-No Politics (FNMA)

[kthomp19]

In other words, if many funds invest a lot of money in any particular stock that appears to be a good value based on their analysis of P/E and so fourth, why would new investors in F&F not approach it just like any other investment where they will buy it if they think it is a good value at whatever the market currently has it priced at?

This is the right way of thinking about it. However, as shown in this post, the way the math works out it is hard to get a secondary offering price above around $8 without making unreasonable assumptions.

There are also theoretical reasons. This "win-win" of yours ignores the new buyers' incentives. Why would they leave any money on the table? Every dollar that current common shareholders end up with is one fewer dollar for the new buyers. People and institutions with this much money to invest didn't get to where they are by not scrapping for every dollar they can get.

Only Treasury's warrants provide a counterbalance, and even then they realize that the warrants must be exercised before the secondary offering.