Local investors/speculators do chase after bonuses

The Perils of Chasing Bonuses:  Local Investors/Speculators do chase after bonuses

It is very surprising to note that the stock price on an average does not reach a peak until several weeks after the announcement.  This is a situation that is peculiar to the local market since in all other markets, the announcement of bonus or split does not attract any buying or upward price movement at all. 

This sharp rise after the announcement can only mean that a large number of local investors still believe that bonuses are of value and they go in to buy the stocks following the announcement with the hope of making further gains.  But sadly, they are likely to be disillusioned because at that point, the price can only move downward. 

Why do they keep on doing this?  Here are the reasons for the chasing of bonuses blindly.

1.  Firstly, there is a deeply ingrained local belief that bonuses are of value.  This is continuously being reinforced by articles in local newspapers which praise companies which give bonuses.  At the same time, insiders with an axe to grind have a strong interest to keep this belief alive.  They, undoubtedly, use all their power with the press to keep the rumour mills working at full speed so as to churn up interst in their stocks.

2.  Second, the concept of *residual movement is totally new to almost all local investors.  Although the residual movement may be negative, the actual price movement may be upward, reflecting the bullish overall market condition.  Typical nvestor who chase after bonuses are precisely the ones who neither understand the finer points of investment nor are they particularly conscious of how the other stocks are doing.  So long as they make some gains from their purchase price, they are happy, not realising that better opportunities exist elsewhere.  This is of course not true for all times.  For those poor investors who buy into bonus-giving stocks just before the market peaks, they are likely to suffer horrible losses.  As usual, those who lose a lot of money tend to keep quiet while those who make some would announce it to the whole world.  As a result, the sad experience of some of those who have chased after bonuses are never revealed and the general public is thus never the wiser.

(*Residual movement is the price movement after the market effect is taken out.)