I received a thick prospectus for a share that I invested in. The company is giving a rights issue to existing shareholders to subscribe for shares of another associated company. The deadline was about 1 week.
The prospectus was complicated. I have no idea about what the new shares were and if the amount to pay for the shares are at a fair value. I do not know if the rights issue had diluted the value of my existing shares.
I send an e-mail to ask my stockbroker to give me a summary of the rights issue, and also to tell me if I can sell my rights at the exchange. Fortunately, I have access to a stockbroker who is able to get his company's research department to answer my questions.
Many retail shareholders are placed at a disadvantage when a company has a rights issue. If they do not act on the rights, the value of their existing shares may be diluted. They should, at the least, sell the rights in the market and get a value that can cover the dilution in value of their "mother" shares.
Here is a real story. A retail investor bought the rights to subscribe to new shares and paid $60,000 to the owner of the rights. He is required to pay another $65,000 at the ATM to subscribe to the rights. As this is the first time that he is subscribing to the shares through the ATM, he entered the amount in the wrong field, i.e "apply for excess rights" rather than "apply for the subscribed rights". The company treated him as failing to subscribe for the new shares. He appealed to CDP and to the company to rectify this mistake but they told him that "nothing can be done". He lost $60,000 due to a small mistake.
There is a small chapter on personal investing in my book, Practical Guide on Financial Planning. You can order here. There is a 15% discount if you order before 1 March 2010, two more days only.
Friday, February 26, 2010
USA has become a social democracy
Read this article. In my view, this is good and also inevitable. The world cannot continue to have widening gap in income levels - which is not sustainable. The free market capitalist model has, on balance, failed to produce a better future for the people of the world.
A social democracy is a new named coined to replace "democratic socialism". It is a society that is based on democracy and has social networks, such as unemployment, care for the elderly, health care, education and other activities that give security and a better life for the people.
A social democracy is a new named coined to replace "democratic socialism". It is a society that is based on democracy and has social networks, such as unemployment, care for the elderly, health care, education and other activities that give security and a better life for the people.
A wasteful society
I receive many publications each month from my bank, stockbrokers, clubs, associations, investee companies and other organisations. Some of these publications are sent to several members of my family. The senders did not bother to remove the duplicates that are sent to the same addresses.
How wasteful. How many trees have to be cut down for the unncessary printing that is hardly read. These publications may be free to the consumer, but it is part of the cost of doing business. The businesses are able to levy high charges to cover these wasteful costs, and still make huge profits. How can we stop this wastefulness in Singapore?
Tan Kin Lian
How wasteful. How many trees have to be cut down for the unncessary printing that is hardly read. These publications may be free to the consumer, but it is part of the cost of doing business. The businesses are able to levy high charges to cover these wasteful costs, and still make huge profits. How can we stop this wastefulness in Singapore?
Tan Kin Lian
Replace GST with a payroll tax
GST is a bad tax. It is very costly to administer and require a lot of work to keep track of countless transactions, including identifying transactions that should be exempt, zero-rated or taxable and the inputs that are allowed to be recovered. This wasteful cost is added to the cost of doing business in Singapore and make us less competitive internationally against countries that do not have this burden.
GST can be replaced by a flat rate tax on wages and investment income. To replace GST at 7%, it should be possible to levy a flat rate of 4% - based on the assumption that most workers will spend 4/7 of their wages on the items that are covered by GST.
Employers can be made to contribute a payroll tax of 4% on the wages. They can recover this amount from workers earning above a certain threshold, so that the low income workers are exempted (i.e. the payroll tax is borne by the employer). This flat rate of 4% can also be levied on investment income. For income from property, this tax can be added to the tax based on annual value.
The government can collect an equivalent amount in taxation (to replace GST) and businesses can be relieved of the administrative cost of keeping a separate set of records and employing accountants to account for GST.
The accounting firms and tax officers will be unhappy to see GST disappear, as they make profits and earn good salaries with GST. But, we are already short of accounting staff to do the ordinary accounting work (other than GST) - so they can be redeployed for more useful purpose.
But can Singapore afford to waste scarce resources on doing wasteful work on GST, when there is a simpler and more efficient way to achieve the same goal?
Tan Kin Lian
GST can be replaced by a flat rate tax on wages and investment income. To replace GST at 7%, it should be possible to levy a flat rate of 4% - based on the assumption that most workers will spend 4/7 of their wages on the items that are covered by GST.
Employers can be made to contribute a payroll tax of 4% on the wages. They can recover this amount from workers earning above a certain threshold, so that the low income workers are exempted (i.e. the payroll tax is borne by the employer). This flat rate of 4% can also be levied on investment income. For income from property, this tax can be added to the tax based on annual value.
The government can collect an equivalent amount in taxation (to replace GST) and businesses can be relieved of the administrative cost of keeping a separate set of records and employing accountants to account for GST.
The accounting firms and tax officers will be unhappy to see GST disappear, as they make profits and earn good salaries with GST. But, we are already short of accounting staff to do the ordinary accounting work (other than GST) - so they can be redeployed for more useful purpose.
But can Singapore afford to waste scarce resources on doing wasteful work on GST, when there is a simpler and more efficient way to achieve the same goal?
Tan Kin Lian
A job for every person
It is possible for a community (or nation) to provide a job for every person suitable to his skill and training and at a fair rate of pay that is sufficient to make a living. In the rural community of olden days, every person can make a living provided that he (or she) is willing to work. Most choose to farm, but other occupations are also available - merchant, craftsman, doctors, teachers.
This type of situation is possible in the modern economy, but it requires a new economic system and better regulation. It is possible to use modern technology to create an efficient and fair market to match the demand and supply for any occupation (e.g. teachers, nurses). A fair hourly rate of wage can be determined that can balance the supply and demand.
This is supposed to be the modus operandi of the free market, but currently the market does not work inefficiently due to gaps in information. If the information is made available in a transparent manner (and this is possible with the internet technology), it would be possible to determine a fair wage rate that will balance the supply and demand.
If there is a temporary glut (i.e. more supply than demand), the number of hours of work can be regulated, so that the available work is shared fairly among all the workers and unemployment is avoided. As each person is paid on an hourly rate, they will earn less for the reduced hours of work but they have more free time for family, friends, holidays or for other part time work.
In the rural community of olden days, each farmer may have some bumper and lean seasons and they adapt their lifestyle to this variation. There is no need for workers to have a fixed salary, when the demand for their service may vary. If workers have variable salary, they should not be making large fixed commitment, e.g. to buy an expensive home!
This type of arrangement may not apply to the economic sectors that are subject to global competition, e.g. manufacture of products that are sold in the global market. But, this arrangement can apply to the domestic economy (including tourism) which should provide occupation for at least two thirds of the people in the community.
How nice would it be, to live in a community where one is assured that there will be work that fits one's skill and training and will pay a fair rate that is sufficient to make a living (but not to accumulate large wealth). There will also be opportunities for some people to accumulate wealth, but the security of work and a decent living should be provided to every person.
Tan Kin Lian
This type of situation is possible in the modern economy, but it requires a new economic system and better regulation. It is possible to use modern technology to create an efficient and fair market to match the demand and supply for any occupation (e.g. teachers, nurses). A fair hourly rate of wage can be determined that can balance the supply and demand.
This is supposed to be the modus operandi of the free market, but currently the market does not work inefficiently due to gaps in information. If the information is made available in a transparent manner (and this is possible with the internet technology), it would be possible to determine a fair wage rate that will balance the supply and demand.
If there is a temporary glut (i.e. more supply than demand), the number of hours of work can be regulated, so that the available work is shared fairly among all the workers and unemployment is avoided. As each person is paid on an hourly rate, they will earn less for the reduced hours of work but they have more free time for family, friends, holidays or for other part time work.
In the rural community of olden days, each farmer may have some bumper and lean seasons and they adapt their lifestyle to this variation. There is no need for workers to have a fixed salary, when the demand for their service may vary. If workers have variable salary, they should not be making large fixed commitment, e.g. to buy an expensive home!
This type of arrangement may not apply to the economic sectors that are subject to global competition, e.g. manufacture of products that are sold in the global market. But, this arrangement can apply to the domestic economy (including tourism) which should provide occupation for at least two thirds of the people in the community.
How nice would it be, to live in a community where one is assured that there will be work that fits one's skill and training and will pay a fair rate that is sufficient to make a living (but not to accumulate large wealth). There will also be opportunities for some people to accumulate wealth, but the security of work and a decent living should be provided to every person.
Tan Kin Lian
Moderation in my blog
Somebody asked why one of his particular comment was blocked in my blog. I block the following comments:
- mischievous
- malicious
- personal attack
- defamatory
I also block some comments by mistake. When a comment is rejected, I do not have any record of it.
If you feel that you comments are sincere and do not fall in any of the blocked categories, you can submit them again.
- mischievous
- malicious
- personal attack
- defamatory
I also block some comments by mistake. When a comment is rejected, I do not have any record of it.
If you feel that you comments are sincere and do not fall in any of the blocked categories, you can submit them again.
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