Sunday 22 June 2014

Size of Fish Matters!

In my last blog post, I mentioned that while the size of the Singapore Exchange (SGX) pond (i.e. no. of shares listed on it) has became slightly larger over the last 8 years, the size of fish (i.e. average price of each share) in the pond has became smaller. Does the size of fish matters? Here, I tracked the performance of shares that retained their original stock codes over the 8-year period from May 2006 till May 2014 and measured whether they have performed worse (posting more than 10% loss), the same (posting between 10% loss and 10% gain), or better (posting more than 10% gain). The results are shown in Figure 1 below. In total, there are 442 shares out of 709 shares in May 2006 that retained the original stock code. Shares that changed their stock codes due to corporate actions such as bonus issues and share splits have not been included in this analysis.

Figure 1: Price Change of Each Price Category of Shares

From Figure 1 above, it can be seen that for practically all categories of shares priced below $5, more shares have performed worse compared to better from 2006 till 2014. The percentage of shares performing worse hovered around 55% for shares priced $1 or less, and decreasing steadily as the average price of shares increases. Conversely, the percentage of shares performing better hovered around 33% for shares priced $5 and lower, and increasing as the share price increases (except for the 1 share priced above $50). This shows that on average, higher-priced shares tend to perform better than lower-priced shares. 

Having said the above, there are always a few exceptional shares that perform much better or much worse than the average share in its price category. Figure 2 below shows the "price mobility" of shares in each price category from 2006 till 2014. As an example, there were 30 shares priced between $0.01 and $0.05 in May 2006. In May 2014, 14 of these trade at less than $0.01, while 1 of these have increased by 6 to 10 folds and trade between $0.30 and $0.50.

Figure 2: Price Mobility of Each Price Category of Shares

A plot of the price mobility in Figure 3 below shows similar trends as the price changes in Figure 1.

Figure 3: Price Mobility of Each Price Category of Shares

To conclude, higher-priced shares tend to perform better than lower-priced shares on average. Hence, besides the size of pond, the size of fish in the pond also matters! Something to ponder the next time a stock is up for privatisation ;)

P.S. The disclaimer in previous blog post applies.

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