Wednesday, 26 March 2014

Share Sale Facilities: A great exit opportunity

Occasionally, as an investor, you may end up with a small parcel of shares in a company.  You may end up with this as a result of a share issue by your employer, due to a corporate action in another share you may own or you may even have shares gifted to you.

These small parcels of shares are often annoying...

They are annoying for several reasons

  1. They are annoying to sell because trade costs are often fixed up to a certain limit.  
    • On a $300 parcel of shares therefore you may be paying ~$30 commission - i.e. you need a 10% return on the shares just to break even
    • A friend of mine got an allocation of shares from his part time employer valued at about $300 and he could choose to take them as shares or to sell them through a share sale facility - he thought the shares may go up over time - however he had totally forgotten to take into account the return he would have to get just to make up his transaction costs
  2. You may not want to hold them in the first place
    • Sometimes a company will spin off a subsidiary or will distribute shares in another company it owns. You may be more than happy to own the first company but know very little about the company whose shares you are getting.
  3. We tend to place our effort where our dollars are
    • As investors we typically spend the most time thinking about the investments which most impact our portfolio
    • If you've ended up with a couple of hundred dollars of shares in a company where you have no other holding I can guarantee you that you're not going to spend as much time on it as a company where you have thousands of dollars invested
Occasionally you will be offered an opportunity to sell these small parcels of shares

Occasionally companies will set up a facility - most often called a share sale facility where small shareholders (owning less than a certain amount in the company) can sell their shares with no transaction costs and receive the proceeds of these shares.

If you ever get an opportunity to sell a small parcel of shares in this way I highly recommend you take it up
  1. You get rid of a small holding your probably not spending a lot of time on
  2. You don't lose a heap of value through transaction costs
I recently had an opportunity to participate in a share sale facility like this.  I have a few thousand dollars worth of shares in Macquarie Bank (ASX: MQG).  Macquarie recently decided to distribute their shares in Sydney Airport (ASX: SYD) on a proportionate basis to their shareholders so I was suddenly a Sydney Airport shareholder owning ~$400 of SYD stock.  

I didn't know much about the stock and I didn't want to hold onto it because of the transaction costs so I was more than happy to take advantage of the share sale facility they were offering.

Share sale facilities offer you a free and easy way for you to exit small positions that add very little to your portfolio.  If you ever get the opportunity to use them I highly recommend them as a way to clean up your portfolio.

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