Bradford & Burned

All in all, Bradford & Bingley turned out to be a pretty raw deal for me. Buying 1k's worth back in May for 112 pence, I've been burned with a loss of 50%. I considered selling when they reached 80 pence at the end of June, but reconsidered, deciding that this was a long term investment and remembering the golden rules of Warren Buffet:

"Rule one is never sell for a loss and rule two is never forget rule #1."

So where does that leave me? Well waiting out the market... waiting for that time when the nation does not believe it is on the verge of recession. For the record I do not believe that a recession is possible in the West any more; its my opinion that we have evolved financially, and that there are just too many systems in place, tagged with prior experience, to allow such an event to occur. I sincerely hope of course that I am not proven wrong.

My reason for this blog, along with exploring the socio-economic development of the West a little, is in response to a corporate action... of course I'm referring to B&Bs latest share rights issue. It turns out that I have until August 7th to make a decision on my holdings. I've outlined my three "options" below.

Option 1: Take up your Rights to buy 1165 BRADFORD & BINGLEY ORD GBP0.25 shares at a cost of 640.75 GBP.

Option 2: Sell your 1165 BRADFORD & BINGLEY Nil Paid Rights.

Option 3: Fund the take up of the Rights by selling some of your 1165 BRADFORD & BINGLEY Nil Paid Rights.

Option 4: Do nothing.

Let's break this down:

Option 1: As of today, if I chose option 1 I would hardly be benefiting at all, as the current price to buy is hovering around the 55 pence mark. If B&B do recover at all before Aug 7th of course then this option may become more attractive. Simple.

Option 2: Selling my rights to by the share is an option, but right now those rights are worth next to nothing. Similarly to option 1, if the share price recovers some, then this option may become viable. Simple.

Option 3: My understanding of this option is a little more shaky. Apparently this involves selling the nil-paid shares that I have been allocated and using that money to buy new shares at the offer price, so that no new money is spent. So I believe here you are maintaining proportionate ownership of the company. With option 2, your share price is diluted, thus decreasing your ownership of the company.

Option 4: Is probably the only viable option at this moment in time. I would imagine that few situations warrant this option, but offering the same-as or even a higher-than trading price, options 1, 2 and 3 become worthless.

Phew. Investopedia's article on Understanding Rights Issues was invaluable.