Quick Lesson: Share Placement, the aftermath

When I first started studying the stock market, it was my understanding that the more the issued shares, the more diluted the supply and demand effect will be. When my company, Raffles Education announced a 30,000,000 share placement, i was worried. I thought it would dilute the market. Whats more, the EPS will be much lower. EPS is really what i work with. What i really wanted was a share buyback, to undilute the market.

But I was pleasantly surprised.

The stock increased over 2 days to $1.890. The same thing happened to Sino-Env, though the rise wasn't that significant, due to a previous rise prior to the announcement. So doesn't it defy the economics law of supply and demand?

Well, if you were to learn about placement, its not avaliable for people like you or me (unless you fish it out from your broker or other sources). Most won't issue this discounted placements to the public, for the obvious fact that its discounted. Daily traders would apply for the placements and for sure, immediately sell for quick profit.

The placements are usually given to investment companies or board directors who have a long term out look about the company. Hence it doesn't affect the "free floating" shares out there. The number of floating shares for daily trading remains virtually unchange as the new placements remain unreachable to the common market.

"The Free Floating shares avaliable to you and me remains unchanged after a placement"

What causes the price rise is probably the expected increase in earnings from a company that re-invests the income from the placement. Hence the subsequent price rise.