Ask Colin

After reading your article in the September edition of SHARES magazine I bought some shares in Millers Retail, paying $6.25 each, on 28/8/01. I was therefore surprised to see in today's paper, less than a month later, that Millers Retail is now down to $2.81. Something funny must be going on, because the listing quotes the 52 week high as only $3.80, whereas the graph in SHARES magazine shows it to have been near $7.00. I have seen nothing in the daily press which would explain this anomaly. Can you shed some light on what's the story with Millers Retail for me?

After reading your article in the September 2001 edition of SHARES magazine I bought some shares in Millers Retail, paying $6.25 each, on 28/8/01. I was therefore surprised to see in today's paper, less than a month later, that Millers Retail is now down to $2.81. Something funny must be going on, because the listing quotes the 52 week high as only $3.80, whereas the graph in SHARES magazine shows it to have been near $7.00. I have seen nothing in the daily press which would explain this anomaly. Can you shed some light on what's the story with Millers Retail for me?

Your broker should have been able to answer this question for you. That is what brokers are for! Also, there is an old saying that you should not invest in something you do not understand. So, let's try to bring you up to speed on this one:

Millers Retail made a bonus issue. Issues pending are reported in the Australian Financial Review every Monday. Also in Shares tables section. Also the company must have made an announcement which you should have been able to find on the ASX site, your broker's site, the AFR site and maybe other places.

The issue was 4 bonus shares for every 5 shares held.

The "Ex" date was 03.09.01. The Ex date is the first date the shares trade after the issue. So, as you bought them before the Ex date, you are entitled to the bonus issue. You will be advised in due course by the company and receive an updated holding statement. If you had bought them on or after the Ex date, you would not have been entitled to the bonus shares.

If the issue had been announced when you bought the shares, the contract note should have shown them as "cum bonus".

The market will adjust the price on the Ex date.

In this case, Millers Retail closed the night before at $6.254.

The theoretical value of the shares after the bonus issue is calculated:

5 shares times $6.254 are worth $31.27

The $31.27 divided by 9 shares you have after the issue is $3.47.

The day after the issue they traded between $3.80 and $3.45.

The additional falls in price since then reflect what has been happening in the world stock markets and any changed outlook for Millers Retail.

If all this is news to you, it suggests to me that you do not know enough to safely buy and sell shares without the assistance of a full service broker or licensed financial adviser. I suggest you consult them until you have done appropriate courses at the ASX or the SIA. You were lucky this time, but there are lots of traps if you do not understand what you are investing in.

Colin Nicholson's Building Wealth Through Shares www.bwts.com.au. Ask Colin page.

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