Mighty River Greed

The question on the tip of everyone’s tongue is, “Should I buy shares in Mighty River Power?” Like children at a lolly scramble, thousands of prospective investors have rushed to pre-register, for fear of missing out if they don’t act quickly. Share prices are driven by fear and greed and the reaction to the sale of Mighty River Power shares is a prime example of emotional investor behaviour.

Until such time as details of the Offer are made public, it is not possible to comment on its relative merits, or to make recommendations about whether it is appropriate for specific investors. Those who are thinking of investing small amounts may have difficulty obtaining personalised investment advice from a professional because, with some exceptions, such advice can only be given by an Authorised Financial Adviser (AFA). There are less than 2000 AFA’s, many of whom do not deal with the public or deal only with large investment amounts.

Investors who do not have access to personalised advice should do their homework before proceeding. That means reading and understanding the Offer documents, considering the risks and expected returns from the investment and considering the relative merits of the Offer when compared with other investment alternatives or the reduction of debt.

Having the Government as a major shareholder of a company is no guarantee of investment performance. Solid Energy is a case in point. A drop in the share price after listing could well offset the benefit from any bonus issues. Prospective investors should consider their tolerance for investment risk, their investment time frame, and how well the investment fits in with their total investment portfolio. Diversification is important. There will be other Government asset sales and other new share market listings to consider so don’t put all your eggs in one basket.