Top of the market? - the series returns - part 5
I rekindled my "top of the market?" series back in late December 2016 as the FTSE 100 index began to flirt with a recod high of 7100. Here is the link to that piece in case you don't recall:
https://www.www.betaville.co.uk/news/top-of-the-market-the-series-returns/
But since then the blue-chip index has powered on, closing yesterday at just over 7400.
Egg on face for me, I guess (although my parachute is the fact that there is a ? in the headline). Anyway, I suppose the lesson from this is that trying to call the top of the market is almost impossible (although invariably there is the odd person who gets it right and you never hear the end of it).
So, I understand that Equity First Holdings, the controversial loans-for-shares provider, has latched on this theme by coming up with another $100 million for European company directors and shareholders that want to avoid calling the "top" by selling their shareholdings.
The way that it works is that if a company's share price dips but recovers by the end of the 3-year loan period, the borrower buys the stock back from Equity First Holdings and trousers any profit – having had the benefit of the loaned cash all that time.
If the company's stock tanks irretrievably, the loaned cash is non-recourse and the borrower keeps the lot.
It's a hedge of sorts and it's worthwhile keeping an eye on how many directors take up Equity First Holdings offer over the coming months as all deals must be announced to the market post the Quindell/Rob Terry saga...