One of the reasons I don’t own shares directly (other then for exceptional reasons) is that most of the available shares in any given company are owned by gigantic institutions and if they decide to sell large blocks, the market will usually get wind of that and the share price will plummet. The more concentrated the ownership of shares in a business, the greater that risk becomes.
Yesterday there was a perfect example of that risk turning into reality. A business which has a chequered history is called THG or the Hut group. Its shares were quoted at around 800 pence at the start of the year after floating as a new listing at 500 pence. That was a classic case in itself – the market rating a retailer with not much special going for it as it it was a technology business. It has happened before (ASOS, in its early days).
The mega investor BlackRock built up a 10% holding in the company or 124 million shares (data anyone could check out using stock market ownership notices). They have now decided they don’t want to keep all those shares and are selling half of them. To shift that many shares in one go is not easy, even for BlackRock, so they have offered them at a discount to a price that has alraedy plummeted – in fact at 195 pence.
So if you bought the shares at 800 pence on the basis of a Sunday paper tip written by some lazy pundit (people do that), you would be 75% down by now!
If you owned these shares in a fund, the most you could possibly own (and your fund manager would be due to be sacked if you did) would be 10% of the fund. so your maximum loss would be 7.5%.
In summary, if you want to speculate in shares, remember that you might well be a sprat swimming in the whales’ feeding grounds.
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