Reverse Stock Split should be prohibited!

[HeSaidSheSaid]

if an investor bought Citi stock shares (like 1000) at the beginning of 2007 for $50/share, then it meant you could virtually kiss your money (~$50000 bucks or 90% of your initial investment) goodbye; because it'd take century or forever for a bank stock like Citi to go back up to $500 share after the 1:10 reverse-split, so you could break even on the investment. Similarly, AIG shares were 1:20 reverse-split.

 

[zdreg]

point?

 

[newwurldmn]

if an investor bought Citi stock shares (like 1000) at the beginning of 2007 for $50/share, then it meant you could virtually kiss your money (~$50000 bucks or 90% of your initial investment) goodbye; because it'd take century or forever for a bank stock like Citi to go back up to $500 share after the 1:10 reverse-split, so you could break even on the investment. Similarly, AIG shares were 1:20 reverse-split.

Best satirical post ever!

 

[Millionaire]

Psychologically its easier to image a $5 stock going up to $50 than a $50 dollar stock going to $500.

But they would have to get rid of the delisting rules, when the stock price gets too low.

There is also the theory that the public prefers lower priced stocks.
This is probably true, i once worked with a programmer, who thought because some low float tech stock had a good run and was trading at almost the same price as MSFT it was too expensive. This was when MSFT was $50 back in 1999.
He had some awareness that MSFT probably had a large number of share outstanding, and it probably wasn't a like for like comparison, but not that MSFT had 1000 times as many shares outstanding.

 

[zdreg]

Psychologically its easier to image a $5 stock going up to $50 than a $50 dollar stock going to $500.

But they would have to get rid of the delisting rules, when the stock price gets too low.

There is also the theory that the public prefers lower priced stocks.
This is probably true, i once worked with a programmer, who thought because some low float tech stock had a good run and was trading at almost the same price as MSFT it was too expensive. This was when MSFT was $50 back in 1999.
He had some awareness that MSFT probably had a large number of share outstanding, and it probably wasn't a like for like comparison, but not that MSFT had 1000 times as many shares outstanding.

Your answer is obviously on spot. Now we have to wait from the OP to explain the title of this thread.,
Reverse Stock Split should be prohibited!

 

[SunTrader]

LOL split or reverse splits mean nothing to the valuation of someone who owned prior to either situation.

Own 1000 shares @ $50 = $50,000
then after a 1/10 reverse split
Own 100 shares @ $500 = $50,000

 

[murray t turtle]

LOL split or reverse splits mean nothing to the valuation of someone who owned prior to either situation.

Own 1000 shares @ $50 = $50,000
then after a 1/10 reverse split
Own 100 shares @ $500 = $50,000

%%
EXACLY right;
except so many chart services do not disclose Citigroup [c] a stock that is really priced @$6.80, not $68 area.
Still, it helped investment bankers so its not a a total loss\LOL
Strange GE + C are some of the few stocks IBD founder was negative on/ in his books.Last i looked # GE ,it was in the $6.66 area+/
I don't know when they kicked both of those out of key indexes, what happened since, i dont really keep up with those 2.

 

[The_Krakenite]

It gets even more fun when you're holding LEAPs and odd-valued splits hit you out of the blue.

 

[NorgateData]

Clearly, you got away lightly with Citigroup. I invested my hard-earned savings of $1,058,335,269,238 back in July 2004 into Nasdaq:TOPS Top Ships and now it's worth a measly $1!

TOPS had the following reverse splits since it listed:
2020-08-10 1:25
2019-08-22: 1:20
2018-03-26: 1:10
2017-10-06: 1:2
017-08-03: 1:30
2017-06-23: 1:15
2017-05-11: 1:20
2016-02-22: 1:10
2014-04-21: 1:7
2011-06-24: 1:10
2008-03-20: 1:3

It also paid a few dividends and special dividends early in its life too!

(not much fun in Nasdq:TOPS for buy-and-hold IPO investors!)

 

[HeSaidSheSaid]

LOL split or reverse splits mean nothing to the valuation of someone who owned prior to either situation.

Own 1000 shares @ $50 = $50,000
then after a 1/10 reverse split
Own 100 shares @ $500 = $50,000

that is on paper, but in reality Citi is currently traded at $62, not at $500/share as you stated. It might bounce back up to $500 in the future. probably, when the DJI would be traded at 100,000.... If you do the math, the loss would come at about 90% loss on the C investment.
or
if you talked about those investors who bought Citi bank shares in the 2009 onward (after the correction), then they'd come out ok.

I talked about those long-term investors who bought Citi bank stocks in the 2005-2007 timeframe when Greenspan was blowing up the idea of ownership society aka the sub-prime bubble. They thought they bought blue chip company (member DOW30), and held it for long term. Then Citibank came around to reverse split on them, cut their holdings to 1/10th, it means it'd take virtually "forever" for a bank stock like Citi to bounce back up to $500/share, so they'd break even in their investment.
on the other hand, Bank of America didn't reverse-slit its stocks, so if an investor who happened to buy BAC at $50/ in 2005-2007 timeframe, and held it for these 10 years, he'd come out breakeven by now (plus dividend payments).
I think reverse stock split is bad for the bag holders aka long term investors. SEC and FINRA should ban it for some companies ... I think the market makers would be beneficial in the case of reverse stock split (if they unloaded all their holding to Mr. Magoo Joe Public before the reverse split). it means market makers wouldn't have to cough up a lot of dough when buying the shares back (1/10th of number of shares in case of Citibank) when Joe Public sells them back to the market makers at the old high.