Reece post-Morsco, page-17

@MarsC

Yes, I'm a long term investor who likes to think that what he does for a living is investing not speculating.

From my point of view, what you are doing is:
- over-complicating a simple matter and
- mixing a two-step decision making process into one-step

When considering this entitlement offer, an existing REH shareholder should consider the following questions in the following order:
1. Is the entitlement offer in the money?
2. Do I want to keep the new shares and/or my original shares?

When considering question 1) Is the entitlement offer in the money?, there is no need to over complicate things by thinking about intrinsic value and the rests.

If the entitlement offer is way in the money like in REH's case, a rational shareholder should participate (assuming his financial circumstances allow it).

If he is concerned that his paper profit might disappear before he gets hold of the new shares, he can simply sell part of his original holding amounting to his entitlements during the offer period and secure the profit.

There is no need to appraise the intrinsic value, there is no need to speculate at all as the paper profit can be crystallised immediately.

Once the offer closes and he receives his new shares, the total number of shares that he holds will still be the same as before the capital raising.

Yes, he will be slightly diluted, but he will have some profit realised to compensate the dilution.

If he's not concerned about securing his paper profit then he can simply wait the new shares are issued before deciding what to do with it.

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After participating in the offer, he now needs to consider the second step, i.e. whether or not to:
- Keep the new shares
- Sell the new shares
- Sell the new shares and all or part of the original shares

This is where I believe you and I disagree. You think that step 1 and step 2 decision making have to be done in one-go, when they are clearly a two-stage process.

Besides this, there is another thing that I don't understand about your way of thinking.

Assuming that you haven't sold your original REH shares, how can a decision to participate in the offer at $9.30 be considered a speculation and your decision to hold and not sell the original shares at $12.66 is not considered an even bigger speculation?

It simply doesn't make sense to me.

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Look, you and I have lots of similar investment philosophy, but if I may be honest with you, sometimes I find you tend to unnecessarily over complicate things.