Wednesday, June 20, 2007

Runaway Bride

Take and Give Needs (Code # 4331) is a stupid stupid name for a company, full stop. But, in the case of this Japanese wedding services company ostensibly catering to Bridezilla and the Mother of Bridezilla, it is, with hindsight, rather appropos. For, as the chart (courtesy of Bloomberg) shows, what one giveth, one frequently also taketh [away].

Perhaps more interesting, this second picture - also of our favorite wedding host (see left) is a prime example of what happens to a Japanese stock when EVERYONE simultaneously sours and take the decision to sell at the same time, as they seemingly did so recently. In this case, it traded "allocation only" for SIX (yes, 6!!) consecutive days before opening on the seventh trading day at a price reflective of where demand and supply met. And in this case, when they finally met, more than the entire float exchanged hands, at price less than 50% of that before they were less-than-sweet on the stock!!
Wilhem von Mueffling's Cantillon, Bostom-behemoth Fido, and presumable Cap Research all bailed. Goldman too, probably jettisoned their position (though GS has yet to file if in fact they did). Certainly the research analysts all bailed (in their recommendations) with Goldman the most notable chump flipping to sell from their prior position the Wedding Planner's chief cheerleader. The nice thing about Japanese market structure is that the stock goes into what is called "suspension", and trade is halted until buyers and sellers clear at a single price. This fact often attracts additional speculative sellers, and the increase in total sellers often causes the original real sellers to up their indicative sale quantities to above what they might desire (or have) to sell, for at the end of the day the sellers are allocated pro-rata shares to the few buyers silly enough to stand in front of the train. Eventually, however, sometimes in minutes or hours, sometimes in a few days as was the case in 4331, the price falls to levels sufficient to attract buyers whose bids build in the book, and then the market clears at a new, state-changed, price. No market impact games by short-sellers, and plenty of time for BOTH buyers and sellers to contemplate whether they truly want to buy or sell given the new information and new indicative prices levels.

Are there any lessons here? Is this simply an ill-fated earnings torpedo, part of the so-called distribution within a portfolio? Or does this move herald something more ominous about pari-passu risk and market dynamics? Some may differ in their opinions, but I think it says that current prices should ALWAYS be taken with a grain of salt. They represent an equilibrium determined by both the prevailing public information, and the impacts of marginal buyers and sellers. Change one of those variables or BOTH ever so slightly and one's margin of error might, that is the depth and clearing price of a market in a proscribed position - as those former owners of Take and Give Needs Co. Ltd have recently found out - just might deviate by 50% or more.

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