MONEY: THE LATEST NEWS FROM THE MOTLEY FOOL
Sunday 11 July 1999
Government flotations of state-owned enterprises are pretty much a thing of the past in the UK, but that is understandable as there is precious little left to be privatised. However, the phenomenon looks set to take off in the Irish republic, if the response to the flotation of Telecom Eireann is anything to go by.
There has been a huge response to the flotation, which has been over- subscribed. More than half a million of Ireland's 2.7 million adults have applied for shares, and that accounts for one in five of the eligible population.
Amazingly, around 60 per cent of those applicants have never owned a share before. The offer price of 3.90 euros (pounds 2.54), which is below the top of the expected range, is likely to provide investors with a nice bit of short-term profit. The government, after all, needs people to be happy with the offering.
The popularity of this offer reflects a few things, namely the booming Irish economy, the strength of the telecommunications industry, and the potential desire for owning shares among the Irish people.
Educating the population to understand and participate in the stock market is a good thing too, providing it is done sensibly and Foolishly.
The danger, though, is that people can be lulled into a false sense of security by such public flotations, which are intended to make a profit for the buyers. Most share dealings do not work that way, of course, and it can be easy to lose sight of the possibilities of losing money. Be Foolish then, small investor. Do your homework before buying shares for yourself in the open market, and don't be seduced by the easy pickings to be had from government privatisations.
A lot of Irish investors have, apparently, been borrowing heavily in order to fund their share applications, presumably in anticipation of selling quickly, paying back the loan, and pocketing the profit. People who hope to make quick profits from such flotations are known as "stags" and, though "stagging" itself is popular, the Motley Fool strongly discourages the practice of borrowing money to invest (or "gearing up", as it is often known). Fools invest for the long term, and interest has to be paid on that borrowed money. That interest needs to be covered by your returns before you start to make any profit for yourself. And, if an investment funded by borrowed money fails, you lose twice, as you have the investment loss itself, and you still have the interest to pay.
Only 9 per cent of the Irish population own shares. That is far below the UK figure of around 25 per cent who have bought shares directly, and further below the US figure, where 30 per cent own shares.
But it is perhaps surprising to learn that the Irish percentage is still ahead of Japan, the country that prides itself on the savings its people hold. Only about 8 per cent of Japanese people directly own shares, and that suggests that most people in that land have their savings in banks or in managed funds. (Not many Foolish investors in Japan, then.)
Ireland scores slightly higher than France, too, whose people come in a fraction of a percentage point behind and, believe it or not, Germany, where just over 6 per cent of people directly own shares.
So, the Foolish word still has a long way to go. But at least the Irish are heading in the right direction, with other privatisations expected to follow soon, probably starting with the national airline, Aer Lingus.
n The Motley Fool, www.fool.co.uk
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