Need info about what to bid in stock offering?
March 28, 2021 6:46 PM Subscribe
I'm a novice, unsure what would be a good price to bid to acquire shares of stock?
We inherited shares years ago in a small, midwestern regional bank with an outstandingly good reputation. The bank was started during the depression in an area of Scandinavian immigrants, as a community bank. We have always been pleased with the ethics and the openness of its board of directors and officers.
We recently received notice that a shareholder is offering to sell 54 shares at $65 minimum, or best offer, per share. We could buy all or a portion of that total.
What facts do we need to be aware of, before bidding? I have the original papers of the shares we inherited in 2009, but since then, the stocks have been split and I don't know if I can locate the paperwork, if we received any then. If I can find it, we can calculate the number of shares along with the dividends we received last year, which would be helpful, but I'm pretty sure we need to be aware of other figures, as well? (I do know that share offerings of this bank to bid upon happen very rarely, as most people hang onto their stock.)
Any and all responses are greatly appreciated!
We inherited shares years ago in a small, midwestern regional bank with an outstandingly good reputation. The bank was started during the depression in an area of Scandinavian immigrants, as a community bank. We have always been pleased with the ethics and the openness of its board of directors and officers.
We recently received notice that a shareholder is offering to sell 54 shares at $65 minimum, or best offer, per share. We could buy all or a portion of that total.
What facts do we need to be aware of, before bidding? I have the original papers of the shares we inherited in 2009, but since then, the stocks have been split and I don't know if I can locate the paperwork, if we received any then. If I can find it, we can calculate the number of shares along with the dividends we received last year, which would be helpful, but I'm pretty sure we need to be aware of other figures, as well? (I do know that share offerings of this bank to bid upon happen very rarely, as most people hang onto their stock.)
Any and all responses are greatly appreciated!
It's unclear what your intentions are for buying more stock in a bank you already have stock in.
As an investment, how are the shares you already own performing? That should inform your decision.
To support a bank which is behaving ethically/supporting its community, the question becomes how much would you pay to keep those shares in ethical hands? It would almost certainly depend on how many shares there are (buying 50 shares if there's 5000 out there is not going to significantly change their priorities), and some specifics about the shares themselves (are all shares voting shares? Have you attended votes in the past?)
If you're looking to invest long term and don't have a retirement account I would always recommend opening a total market or targeted retirement account. If you are set on that front, activist investing, wherein you can control voting shares and ensure your local bank continues to serve the community is a sound use of money that you aren't planning on using for retirement.
posted by I paid money to offer this... insight? at 7:45 PM on March 28, 2021 [1 favorite]
As an investment, how are the shares you already own performing? That should inform your decision.
To support a bank which is behaving ethically/supporting its community, the question becomes how much would you pay to keep those shares in ethical hands? It would almost certainly depend on how many shares there are (buying 50 shares if there's 5000 out there is not going to significantly change their priorities), and some specifics about the shares themselves (are all shares voting shares? Have you attended votes in the past?)
If you're looking to invest long term and don't have a retirement account I would always recommend opening a total market or targeted retirement account. If you are set on that front, activist investing, wherein you can control voting shares and ensure your local bank continues to serve the community is a sound use of money that you aren't planning on using for retirement.
posted by I paid money to offer this... insight? at 7:45 PM on March 28, 2021 [1 favorite]
What fraction of your wealth would this investment represent? If it's small and you like supporting this bank, as it seems you do, go ahead, have some fun. If this represents a significant investment for you, then your questions indicate a level of understanding inconsistent with investment in illiquid, hard-to-value securities, and you should stay away.
posted by drdanger at 9:40 PM on March 28, 2021 [10 favorites]
posted by drdanger at 9:40 PM on March 28, 2021 [10 favorites]
Do you have any information about other recent sales of the bank stock? If you wanted to sell your shares, how would you do that?
You can also look at other regional banks that are publicly traded. Check the price/earnings ratio, the dividend yield (divided/price) and see how it compares. Then also compare the other financials to see if your bank is more solid or more risky than the comparable.
Another number to look at, is how much your money would earn if you invested in something else that paid a secure dividend. For example, at what purchase price would money earn a dividend equal to what you would get on CD? How you adjust based on (1) chances the dividend would go away and (2) chance the value of the underlying stock would go up or down.
Finally, this is a small investment ($3510 at their asking price). figure out a minimum safe price that you are sure you would get back via dividends or resale and then look at what you are willing to add on because you like the bank and you are comfortable with the risk.
One more thing, make sure you understand how the seller is going to choose who gets to buy. Is there a deadline? If your offer is low, can you make a counter offer? So, there is also some strategy involved in deciding how you much you to offer.
posted by metahawk at 10:06 PM on March 28, 2021
You can also look at other regional banks that are publicly traded. Check the price/earnings ratio, the dividend yield (divided/price) and see how it compares. Then also compare the other financials to see if your bank is more solid or more risky than the comparable.
Another number to look at, is how much your money would earn if you invested in something else that paid a secure dividend. For example, at what purchase price would money earn a dividend equal to what you would get on CD? How you adjust based on (1) chances the dividend would go away and (2) chance the value of the underlying stock would go up or down.
Finally, this is a small investment ($3510 at their asking price). figure out a minimum safe price that you are sure you would get back via dividends or resale and then look at what you are willing to add on because you like the bank and you are comfortable with the risk.
One more thing, make sure you understand how the seller is going to choose who gets to buy. Is there a deadline? If your offer is low, can you make a counter offer? So, there is also some strategy involved in deciding how you much you to offer.
posted by metahawk at 10:06 PM on March 28, 2021
To quantify, I would skip if the total is going to be more than 5% of your investable assets. A bit of "fun money" is a great thing, but diversification is so important.
The next thing I would find out is what amount of earnings that share represents, otherwise known as earnings per share. That's the annual profit of the bank divided by the number of shares outstanding, both of which should be pretty easy to find on an annual report. Then you could estimate the value by multiplying by the price to earnings ratio, which is currently 34 for the S&P 500. E.g., let's say the bank has annual profit of $1 million and 500,000 shares. That's $2 of earnings per share. So the shares would be worth approximately $68 apiece. Now, that 34x ratio would have been considered frighteningly high not so long ago, but it hasn't dropped below 19x in the past 5 years. Or you could use 17x, which is apparently the current-ish number for regional banks.
posted by wnissen at 10:09 PM on March 28, 2021 [1 favorite]
The next thing I would find out is what amount of earnings that share represents, otherwise known as earnings per share. That's the annual profit of the bank divided by the number of shares outstanding, both of which should be pretty easy to find on an annual report. Then you could estimate the value by multiplying by the price to earnings ratio, which is currently 34 for the S&P 500. E.g., let's say the bank has annual profit of $1 million and 500,000 shares. That's $2 of earnings per share. So the shares would be worth approximately $68 apiece. Now, that 34x ratio would have been considered frighteningly high not so long ago, but it hasn't dropped below 19x in the past 5 years. Or you could use 17x, which is apparently the current-ish number for regional banks.
posted by wnissen at 10:09 PM on March 28, 2021 [1 favorite]
If you're a novice, unless you're wealthy to the point that $3500 doesn't matter to you or you *really* like the idea of supporting this specific bank, you shouldn't invest more money into a company that you don't know how to value. Odds are high that over time, investing in a quality index fund will bring you better returns than a bank and with a lot less risk, especially given that you already have money invested in this bank. It's pretty hard to make money as a small bank at the moment.
posted by Candleman at 1:23 AM on March 29, 2021 [3 favorites]
posted by Candleman at 1:23 AM on March 29, 2021 [3 favorites]
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There are some things you could do:
-- Find out if other shares have changed hands recently, and if so, what was the selling price.
-- Find out the dividend history, and calculate the share price as a multiple of the dividend. (For example, if the dividend is $3, then a $100 share price would be equivalent of a 3% annual return.)
-- You could ask the bank if they have calculated a fair market price for the shares. They may do this regularly as part of their financial management.
Someone at the bank should be able to give you answers to all those questions.
To go beyond that would require a great deal of specialized expertise and a lot of time going through the banks books and balance sheet to figure out what the value of the bank should be. Doing that fully is a huge undertaking, and not something one person would or could do. If you knew something about banks you might be able to get a general idea from looking at the balance sheet and financial reports. But it sounds like that's not the case.
The other important question is what your goal is in purchasing the shares? It's clear that you appreciate the bank as a business. But is your goal to collect the dividends and just hold onto the shares forever? Do you hope to sell them some day at a profit? Is there any chance you'd need to sell the shares quickly some day, to get the cash back?
One note: it turns out that there is a specialized investment in "mutual banks". These occasionally go public, and when they do, their depositors are given a chance to participate in the offering. Apparently there are people who put $50 in lots of little mutual banks around the country so they'll be able to buy into those offerings when they come up. I found out about this because Eastern Bank in Massachusetts just went through this process. They ended up raising close to $2 billion dollars, with all the shares getting purchased by employees and depositors. The actual first day of public trading was in October, and the stock price has doubled since then. So there is that angle, too.
posted by Winnie the Proust at 7:28 PM on March 28, 2021 [3 favorites]