MAXIS - Ananda, Market Reaction and Panic Selling

Regret and disappointment  were overwhelming when I read that Ananda Krishnan, the multi-billionaire major shareholder of MAXIS  suddenly sold a substantial number of shares of the telco below market price last week. Right after the news the share price depreciated fast down to 6.26. As most of us who read articles or books on investment would have known that when an owner of the company sells his shares, we should also follow suit. The logic is why should the owner of a supposedly profitable company dispose of his shares? Is the company heading for lower bottomlines? ( read profit/dividend).

When Uncle Ananda sneezes, we all catch a cold!

I bought the shares high at 6.385 in the middle of June 2012 and had witnessed the short rally when the price appreciated right to 6.92 in early July but did not sell as I was thinking of getting the high dividends declared every three months. I held on to the shares rather arrogantly.

I  noticed the nervous selling down  in the market of MAXIS shares following the news. I was also in the state of  apprehension myself and was thinking that I should cut my losses fast by selling at 6.37 last Friday 27 July 2012.

I asked my remisier to queue in the morning and it seemed nobody was buying. In the meantime, I read an online article on the subject and came to understand  that Ananda actually sold his shares to PNB and EPF. I felt relieved as I knew these mammoth institutions exist to make money for their members/investors and they are not likely to sell off the shares as the stock generates good dividends. By 2.30pm the same afternoon, I called up my remisier and asked whether she was able to sell my 50% shares and she replied in the negative. I told her immediately to cancel it while hoping that my decision and analysis of Ananda's action were correct.

And later, true enough the  shares began to recover and today the price has gone up to 6.57. Some people would have made quite a sum had they bought my shares at 6.37 last Friday!

Panic selling due to herd mentality is not abnormal in a stock market. People react to news, negative or positive to defend their positions. Individual investors are supposed to find out fast the reasons behind such action and analyse the information so that a decision made either to sell or to buy is based on rational analysis and not on emotion. But really, it is easier said than done and one can always be wise  after the event. In my case, I made the decision to withdraw the selling just in time.

I believe Ananda would not have done anything to destabilise his company. Moreover he only sold 5% of his holding of 70% and he has also just become one of the cornerstone shareholders of the third largest IPO in the world, the IHH! MAXIS shares appreciated from 5.39 early in the year to 6.92 middle of July so his selling them  at 6.21 to the "safest" institutions in Malaysia would have already made him enough money to fund his new business/ acquisitions including IHH.

By the way, have we ever heard that MAXIS's customers are dumping the telco? A big  "NO", so the generation of income will still give  a generous dividend of 32 sen annually ( provided past performance is sustainable).

Yes, I also initially reacted mindlessly to the news of Ananda's shares' disposal and nearly dumped  50% of my shares but by the stroke of luck, no small  investors could have foreseen the temporary hiccup in the market and so refused to touch those shares I had wanted to short!

Dividend Leader of the Pack

From now on, and for a period of  time, I will keep MAXIS shares for its high dividend-yielding nature.