I digress… “Me thinks Safaricom is deliberately suppressing it’s share prices! #KOT”

Prices of Shares quoted at a stock exchange depend to a large extent on the laws of supply and demand. When the demand for shares of a particular company rises, the price of the shares soar and vice versa.

The demand for shares of a company is affected by it’s present and future prospects in terms of it’s profitability.

Those investors mainly interested in present profitability of the company are Short-term (I call them hype) investors. They  are more interested in whether the company is declaring large profits now, which means people might buy the shares. Most of these invest in the shares so that as soon as the share prices rise to their liking they sell them off and make a profit. Such investors wouldn’t know about the idea of a shareholder being owner of a company if it came wrapped  in dollars…

Long term investors buy company shares after careful study of the company’s fundamentals ie it’s current profitability levels,the business the company is engaged in and it’s future,the growth prospects of the company,the management of the company etc. Such investors are not overly bothered by whether the share prices or indeed the declared profits fall. Unless it’s with a big margin.

These two investors meet at the stock exchange and buy shares raising the demand for such shares and hence the price shoot up.

I really, really don’t think I need to explain to you what safaricom is and it’s prospects and fundamentals. If you find a better company than safaricom currently in Kenya then I must have missed it…

The million shilling question is, why has it’s share prices ever since it’s IPO always remained abnormally low?  My hypothesis is that the company or it’s affiliates  are deliberately suppressing the share prices.

Can it do it?  How? Easy: The shares issued during the infamous IPO  were so many so the company or it’s affiliates allocated themselves a big chunk. Whenever there’s a risk of demand shooting up, especially when they declare their usual abnormal annual  profits, they sell some shares to keep the demand for the shares low. They also make sure that they declare very very low dividends to make the shares even less attractive: 20 cents per share! Nkt! 

Why: it’s usually a nightmare,and an unnecessary risk dealing with short-term IPO (hype) investors as they may cause a run on the shares by selling them enmasse eg after   taking some malicious rumours seriously.

The point? if the share prices  are kept very low, these “hype” investors will get tired of holding on to  the “useless” shares and sell them off. The serious long-term investors will then gobble them up, and the Serious business of making serious money will begin…    

          

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