ThE sPaCeCoWbOy

Whats the benefit to this?

My one stock did this today 1:10 ratio. I'm kind of upset someone cause now I dont have that many shares in the company, but it did do me some good cause I did make money on it...it just seems odd and I was wondering what the benefit was to this?

Thanks,
space

CT944

no benefit to you (except for small gain/loss on the miniscule mis-pricing of the 1:10 post split).

the shares are now more expensive, and there are now less available on the market. the company may want to cater to investors with larger money to invest. the company wants to have less shares on the market at a higher price, this sometimes creates demand......etc, etc.

don't worry about the amount of shares you own, just maket sure the market value of your investment is going up!

W88951

I would take that over what my Williams Communications Stock did. Evaporate.

josephsc

Splits and reverse splits are purely for the sake of maintaining liquidity in a stock. If a stock is say above $100, it's cumbersome b/c a round-lot is $10000 worth of stock -- better to split the shares so that a round-lot is smaller. If a stock is less than say $5, then you risk getting delisted by the stock exchange and exchange fees -- which are in terms of shares not dollar amount -- gets noticably large. So you do a reverse split (common in the post-bubble era).

All other effects are purely illusional (but illusions can also move stock prices...) -- the percentage of the company you own doesn't change no matter how you cut it. If you owned 1% of the company before, you still owen 1% of the company -- no matter how many actual shares you own.

Bryans951

Actually, for the most part when a company has a reverse split it is so they can remain listed on a certian exchange. The exchanges have price limits for stocks as well as earnings requirements and so on.

I would personally keep a close eye on your stock. Having less shares doesn't give the company any more value. What ever the companys valued at when there's 100 shares @ $1.00 is the same when there's 10 shares @ $10.00.

Geo

Ack! Sorry to hear about that.

I did some consulting for them back in 99.

Geo

The only problem with this is odd lots. If you had 100 shares they were a nice round lot and easy to move for minimal cost. If that became 10 shares you now have an odd lot and while they can still move, it costs you more. This is why it keeps out smaller investors.

ThE sPaCeCoWbOy

well I had close to 2K shares and now at 200 shares...I wanted to keep putting money it in cause I had a feeling that it would increase in price and hoping by the time it jump I would have close to 10K shares...but now I think I'll just wait till I get a decent profit and sell...

Any advice?

Thanks,
space

Danno

Well, what's it doing right now!? How's that compare to some other stock you could stick your money in that's going up RIGHT NOW.??? It's kinda like an integration in calculus. Any long-term time-span can be broken up into an infinitely smaller number of time-slices. If each and every slice is positive, the overall total will be larger as well. Why hang onto a stock that's doing nothing, if there's something else that's gaining in the same time-frame?

Even with a single stock, how and when you sell makes a huge difference in your gains in the end. For example, IBM. Let's say you had a even block of $10K, 100@100/share. IBM, the long-time darling blue-chip of Wall Street goes into the gutter at $50/share. You have roughly three paths:

1. hang onto the shares as they fall to the basement. Your $10K investment becomes $5k. You hang onto it for 2-years as it stagnates then recovers. When it hits $100/share again, you sell to break even. Net result: $10K cash, 0 dollars gained/loss over 2-years

2. hang onto the shares as they fall into the basement. But when it recovers to its break-even point, you hang on as it continues upwards. You sell at $130/share. Net result: $13K cash, $3000 gained in 2-years

3. sell immediately at stop-loss of -10% for $9K in cash and buy something else that's gaining 17%/year as IBM wallows. When IBM hits the previous sell-price, you watch to see if it continues. It does, hits the previous high of $100, so you sell those intermediate shares for $12,320 cash (+17% for 2-years) and you buy back into IBM @ 100/each (123 shares). It continues upwards. You sell at $130/share. Net result: $15,990 cash, $5990 gained in 2-years

All three strategies have the same beginning and end points with IBM stock doing the same thing before & after. It's what you do in the intermediate time-slices that determine your final result. Picking stocks is easy (even a chimpanzee or 4th graders can outperform a pro), it's knowing when to sell that's the secret.

BTW - I only buy stocks when they hit an all-time high...

Geo

Good way to lose money. The people making the money are the ones who bought in before it hit the all-time high. Yes, you might make some money off the stock, but if you wait for an all-time high you're just as likely to lose. My strategy here would be to find a company way over valued and sell it short.

I prefer to find stocks of solid companies that are way under valued for some crazy reason.

Geo

Well you have to weigh current events against your original strategy, which I interpret as buy and hold. If that is the case, how does the reverse split (taking your own emotions out of it) affect your strategy? How do you think the reverse split will affect the stategy of others? Will more investors want to buy in or will more investors want out? How long were you planning on holding the stock?

You have to evaluate the stock against your original strategy and your expectations for this stock in the future. But you also have to know when to cash in.

The old saying of buy low sell high needs to be remembered. Too many people panic when a stock falls and sell. They guarantee themselves a loss. An old girlfriend almost sold out of a solid S&L some years ago when the stock she bought at an IPO went down to $7 (from an IPO of $14) on the advise of her mother's broker (her mother sold and guaranteed a loss). Since she didn't need that money for some time I advised her to wait since this particular S&L was rock solid. Jump ahead a year and a half or so and I saw the stock was up to $18. I advised her to sell. Take the money and run and guarantee yourself a profit. Since we had broken up already I don't know what she did, but she told me her mother's broker advised holding because it might be a takeover candidate and might go higher. I reminded her that this same broker advised her mother to sell at $7.

There are a few morals to the above story, starting with buy low, sell high. As trite as that sounds, and despite almost being a joke, it's amazing how many people forget that. The other is to have a strategy and unless the condition of the company changes materially, stick with it. That includes knowing when not to be greedy and taking the money and running. A lot of people have lost a lot of money because a stock was soaring and they just hoped it would go higher. Problem is, too many times they drop as fast or faster. When you've made your money, unless you have a strategy to hold for life, sell.

I'll leave you with something I realized from my short stint at public accounting. We had a client who had two HUGE spreadsheets (those awful green columnar pads) filled with stock transactions, one long-term, one short-term. The guy never lost a penny. I realized why the guy never lost a penny. He didn't need the money he invested, so if a stock took a dump, he held it (why guarantee a loss). And if he made the money he expected, he got out and guaranteed a profit. Don't invest money you cannot afford to be without for 2-5 years. While it's invested, don't get emotional about your investment. Leave that up to the other amateur investors.

Good luck.