Secondary Stock Offerings

[Joe Ross]

This question was sent to me from one of our students: "Hey Joe! Can you explain to me what a secondary stock offering is?"

Secondary offerings can be used as a stock market indicator similar to "insider selling." It occurs when traders that have the most knowledge about a stock sell it to those with the least amount of knowledge. These offerings are made by large sharehold¬ers or groups of shareholders, who no longer want to own their stock and are seeking to raise money. Perhaps the company's credit is over-extended and they can not borrow against it. The secondary offerings take money from the public diluting funds that may have been spent on other stock. More stock supply decreases a company's share value, and the overall market. Large amounts of secondary offerings are generally bearish to the overall markets. Another market top indicator is a widely publicized take over war. Two companies engage in a bidding war and their share values rapidly increase in price, as does the object stock of their bidding. This usually results in the winning bidder over-paying for the prize, and an over-valued market due a bidding war. Short sell the winner's shares when the deal is done, the loser and market may soon follow.