🗞️The Wrap: Splits
Splits, SPACs and a visit to the Jungle.
Reading old-time memoirs from former stock traders (Reminiscences of a Stock Operator for instance), it always puzzled me why the authors reported in number of shares not volume of dollars traded; “I traded 50,000 shares a day”. What does this mean when Tesla is $1500 and Nio is $15!
Looking into it, shares didn’t really have a cash price attached to them, at least not on trading floors. Back in the day, shares were quoted in relation to par value, not in cash. What? Shares were assigned a par value, usually $100, and traders quoted the price as a percentage of this value so the price didn’t matter! 25% of par is 25% no matter if par is $5 or $100. As such, reporting the number of shares traded was far more useful than baseless percentages.
Once the shift to cash pricing occurred in the early 1900s, the price of a share became so much more important! As we moved away from par values and onto a more dynamic, ever-changing company valuation, the number of shares a company had mattered far less. It was all about price and market cap.
Stay with me. In related news, Apple announced a 4-to-1 stock split during last week’s earnings report. Why and what does it mean? The reasons why are numerous, from making the stock accessible to more investors. Its impacts are deeper though.
Remember that stuff above on pricing? The Dow Jones is price-weighted. When it was founded in 1884 it was all about par values and so the index was created to value a stock based on its price. The higher the stock price, the higher its weighting in the index. Apple at $400 is worth 4x as much as Nike at $100…even a century later. That’s why we don’t talk about the Dow Jones at Stake. By splitting the stock, its impact on Dow pricing reduces by 75%. Instead of being worth ~11% of DJI’s move, Apple is now worth 2.75%.
Enough nerd talk, what does it mean for you? Really not much. You will receive 4x the number of $AAPL units you own when the split occurs come August 24. Concurrently, the price per share of $AAPL will divide by 4 (So 100 shares at $400 become 400 shares at $100). Rest assured, fractional shareholders will receive 4x their fraction too. Stake will be in touch with AAPL holders with more details, closer to the date.
Africa has a new jungle stretching from Camps Bay, Cape Town to Khan El-Khalil in Cairo. Dubbed the African Amazon, Jumia is an eCommerce platform valued at just over US$1billion. It hasn’t been an easy first year on the NYSE for $JMIA which traded as low as $2 not long after its $50 peak in April last year.
At this point, the company’s cash at bank was almost equal to its market cap and we slowly started to see Stake traders take positions in the stock, first the value-minded investors before the momentum traders as the stock rocketed up to $21 from its $2 low in March.
At this stage, the only comparable feature between Amazon and Jumia is their business line. It’s no easy task setting up a successful eCommerce platform across a 1.2b inhabitant continent but the opportunity is great. According to Nasdaq, Africa is home to 5 of the top 10 fastest growing world economies.
Historically, only mining stocks from African countries have really found success in foreign markets but there is by no means a lack of innovation. While mobile payment systems like Apple Pay may be a novelty for Australia, the UK and NZ, Kenyan innovation revolutionised the space in 2007. M-Pesa completely digitised banking. For 13 years Kenyans have been banking via mobile phone and since then the technology has spread across the continent, into India and even Eastern Europe.
While we are now seeing Chinese companies make their way onto our stock markets and boom, it’s only a matter of time before the emerging markets finally do emerge. Definitely a space to watch!
After analysing the most traded lists on Stake, chances are quite a few readers have traded a SPAC, some without even knowing…for better or worse. As we’ve touched on in past Wraps, a SPAC is a holding company set up to be merged with by an existing operational company. It’s an efficient way to gain access to the market without the costs and trouble of an IPO. DraftKings, Virgin Galactic and Nikola Motors all started as SPACs. While it may be a hot new trend, they’ve actually been around since the 80s.
At some stage in the next couple of years, Bill “Spac-man” Ackman may well become Stake traders’ favourite superhero. The investor famous for turning US$27m into US$2.6b after shorting the market earlier this year has launched the biggest SPAC in history.
Pershing Square Tontine Holdings ($PSTH.U) debuted as a US$4b blank check company. Ackman has stated they plan to merge with a “mature unicorn” within the next 18 months meaning there are some big-name private companies being rumoured. Ackman is targeting a company worth at least US$10b.
So what are some of the finer details regarding SPACs. In short, they’re complicated and risky; unless traders fully understand the nuances they are best avoided.
Each unit of a SPAC bought usually comes with a fraction of a warrant attached. These warrants give investors a right to buy the stock in the future at a predetermined price.
Should a warrant be issued to any SPACs purchased through Stake, it will be liquidated at market value and delivered as cash. Harvard Law School published a great resource on the finer details around SPACs available here.
What We’re Listening To | Eurodollar University
For a full, no detail spared understanding of the mechanics of global credit, Eurodollar University is the Harvard of economics podcasts. While Eurodollars refer to all the US dollars circulated outside the United States, over the 20+ episodes in the series, Alhambra Investments breaks down the world monetary system including what exactly the Fed is doing and how it’s impacting markets…the golden questions for some.
For access to all 20 episodes, click here.
For a one episode review of it all, click here instead.
Guess the next four letters in the series: GTNF…
Best Buy | $JMIA
The African Amazon has been on a tear! At one point it’s market cap was almost equal to its cash at the bank, and investors noticed. Despite a pullback, this trader still almost doubled their money in a week.
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