Does it make sense buying a share just before a bonus issue or a stock split?
I just did that (see previous post) and now I am wondering whether that was a wise decision.
Here is the math: KVB bank offered 2 shares at Rs 150 for every 5 held.
I bought my shares at around Rs 550 so my total investment would be...
550x5 = 2750
and then...
150x2 = 300
... which means I buy 7 shares at 3050, or Rs 436 per share.
KVB is at Rs 390 (18 Mar), which means that I have already lost around 10%.
Anyway, lesson for the future: The market will account for these events i.e. bonus, or splits do not come cheap or for free. On the day of the split/bonus the stock price will go down proportionately.
Because the previous post has so little detail... the reasons I bought this stock in the first place were that its financials looked pretty strong (to me), offered regular dividends, and the bank was on an expansion plan. They also offer the highest rates I've seen on term deposits, so they must be doing something right (or so the logic goes).
These reasons still hold true for me and I'm sure the stock will pick up. The lesson here is that bonuses/splits can be safely ignored when deciding to buy a stock.
Links:
KVB on Google Finance
KVB on MoneyControl