I’m starting this week’s Unit Trust saga with that thought on shareholder meetings.
People who own shares in companies are entitled to attend these meetings, because you own part of that company. But you and I, as owners of part of a Unit Trust Fund which in turn owns the shares, don’t get invited to the shareholder’s meeting of Woolworths. However, the Allan Gray Equity Unit Trust Fund owns about 1.5 billion Rand’s worth of shares of your favourite Woollies Store, which means that Allan Gray is entitled to send their fund manager guys off to the shareholder’s meeting on your behalf. And they do this. So you get representation at and someone defending your ownership of that company. If the fund manager guys don’t like what they hear, or don’t like what the company is doing or the dividend that has been declared at the meeting for that quarter or that year, they might slowly sell some of the shares they’re holding.
Let’s now look at that price up and down thing, which in turn implies the movement of the value of our funds up and down.
Generally, the price of anything is determined by supply and demand. Lots of people want it: price can go up. No one wants it: price will come down. Many people want it at the same time: called an auction. Simple as that. I want to play tongue in cheek here with an example of how the value of a share of a company and hence the value of our unit trust fund, can move up or down for no apparent good reason.
When a unit trust fund manager needs to sell some shares of a particular company in the fund – it might be that they have had a large withdrawal from their fund or they are ready to sell a particular share because they are happy with the profits they can take from the price going up nicely – they have to find a buyer. Yes, every sale on the stock market requires the seller to find a buyer. Every buyer of a share, has to find a seller. It’s not like cashing a cheque at the bank (history lesson) where you can easily get all your cash at once. So, let’s say a fund manager puts two hundred million Rand of Pick n Pay shares up for sale. He finds one buyer for all of it in one go: the trade is done. (I say one buyer in one go because it might take him the whole afternoon to sell bits and pieces of that 200 million through having to find multiple buyers) This trade would now be the latest trade of Pick n Pay on the stock market and has therefore just set the price of a Pick n Pay share for whoever carries out the next trade. If it was the last trade of the day, then it is the closing price of that share/company for that day and the price you see in the newspaper the next day.
If, while the Allan Gray fund guys are trying to sell this two hundred million Rand of Pick n Pay, another 10 sellers start trading – they could be individuals, other stock brokers, other unit trust fund managers like maybe Marriott needs to sell as well – then there might be too many sellers for the number of buyers on that day and the price will go down and down and down as all the sellers compete for the too-few-buyers. So if Pick n Pay’s share price goes down that day, it also means the price of your unit trust fund drops for the day. (Remember, your unit trust fund has a piece of its pie chart owning this company and that piece of the pie chart has just dropped in value) And then you get upset tomorrow morning because your fund value went down meanwhile it’s your mate’s fault down the road because he came along and added the last 300 million Rand of sale on Pick n Pay and ‘helped’ the share price go down. It had nothing to do with Pick n Pay doing badly or Putin in Ukraine or Elon buying a bird company – it was simply too many people wanting their money out in a short space of time. Follow?
Like in The Pillars Of The Earth: The beautiful lady star character who had begun a wool selling trade – she could not sell all her fleece at the end of the year because there were suddenly too many sellers for the number of buyers.
Hope my stories today continue to make sense.