Citigroup reverse stock split May 6

[Mr Nice Guy]

Citigroup (C) plans a reverse stock split after trading on May 6. Is it a good thing to buy shares while they are this cheap right now and sell off after the split for a profit? Or am I confused here?

Citigroup Announces Reverse Stock Split Intends to Reinstate Common Stock Dividend of $0.01 per Share

[Mr Nice Guy]

"When the reverse stock split becomes effective, every ten shares of issued and outstanding Citigroup common stock will be automatically combined into one issued and outstanding share of common stock without any change in the par value per share."


I suppose this answers my original question. I've never seen a split happen before. Will we normally see a run up before and after a split, or a big sell-off?

[minnie1928]

"When the reverse stock split becomes effective, every ten shares of issued and outstanding Citigroup common stock will be automatically combined into one issued and outstanding share of common stock without any change in the par value per share."


I suppose this answers my original question. I've never seen a split happen before. Will we normally see a run up before and after a split, or a big sell-off?

I own some Citi. My guess is that there won't be a run up or a sell off because there's nothing there to drive it. The value of the shares remains the same as it was before the split. If I own a $1000 worth of Citi before the split, I'll still own a $1000 after the split. All that has changed is the number of shares I now own.

[tripods68]

I still own 40 shares of CITI, i bought 2 years ago. Almost forget about this.

Reverse stock split is nothing more than "to make stock value worth more" than it is. Perception is everything. By reducing the number of shares outstanding (from 40 shares to 2 shares for example) price per share will go higher. Let's face it, the share has done nothing for the last 2 or 3 years, and has been diluted by Taxpayers diluting it further.

But I believe "SPLIT" per se won't increase the share per price (there is historical evidence to support this), at least not until it improved its fundamentals. That might take few years. But if you go long, let say at least 5 years, your return on investment might be worthwhile. IMO

[Slug]

No change in value of the company. Only change is a lessened risk of de-listing which wasn't much of a risk anyway. Other change is it will be more difficult for some people to afford enough shares to write covered options.

[dczech09]

There will not be a change in the value of holdings as a result of a stock split or reverse split. Yes it may lessen the risk of being de-listed from a certain index or market platform, but not to the extent to worry.

Also, strictly on a behaviorial finance stand-point, a stock split/reverse may increase liquidity for the market of that particular stock. For instance, if a stock is trading at really high amounts (say $100 for arguments sake) a stock split to $50 per share may increase the number of investors who can afford that particular stock.

On the reverse side, a $0.50 share of stock may give out the image of "penny stock" or "high risk stock." This market perception will make potential investors think twice before investing. So, a reverse split could make this stock trade at say $1.00 which will make some of those potential investors view it as a bargain.

Again, this is all strictly on a behaviorial finance stand point and ignores actual business fundamentals. But one cannot argue with the logic that a split can certainly open up liquidity for that stock's market and increase volume and market prices.

[tan fish]

I would also add that a lot of the big institutional investors have rules which prohibit them from buying shares that are less than $5 a piece. So in theory, once the reverse split happens, some of these big boys might pick up a lot of C. Of course, what will actually happen I think is driven a lot more by other factors.

I owned C and traded C many times in the past 3 years. Its such a heavily traded stock and it hasn't broken over $5 and held above that range for years. I'd be curious to know myself what will happen to it.

[timdaily]

I suggest you to hold your shares, do not rush to sell them..

[tulog]

A reverse split is traditionally bad for a stock. This case is an exception because it will result in more institutional investment into Citi in the long term.

The way I would play the short term price fluctuations is:

1) do not buy now, and

2) watch the price of C after the reverse split. If the stock plunges after the split, and then forms a bottom, that would be a potential long term buying opportunity.

[Slug]

I dumped C for a small loss.

[jpg7n16]

No change in value of the company.

Agreed with this.

Stock splits do nothing to the actual company - except sound cool.

Would you rather have 100 shares @ $20 each, or 200 shares @ $10 each?? Either way, you've got $2k, the split does nothing except double the number of shares you hold.

It cuts the price in half, and the earning per share in half too.

Imagine it's a $20 million company split into 1 million shares ($20/share) that suddenly becomes a $20 million company split into 2 million shares ($10/share). Either way, it's a $20 million company. Nothing has changed except there's now a lot more pieces.


A reverse split says would you like 10 shares @ $1? or 1 share worth $10?? It makes no difference at all.

Usually a reverse split happens because the company feels that the stock has fallen too low to be attractive to investors, or too low to be listed on a certain stock exchange. So they artificially raise the price per share by combining a bunch of shares together.

Nothing has changed except there's now a lot less pieces.

[Mr Nice Guy]

Agreed with this.

Stock splits do nothing to the actual company - except sound cool.

Would you rather have 100 shares @ $20 each, or 200 shares @ $10 each?? Either way, you've got $2k, the split does nothing except double the number of shares you hold.

It cuts the price in half, and the earning per share in half too.

Imagine it's a $20 million company split into 1 million shares ($20/share) that suddenly becomes a $20 million company split into 2 million shares ($10/share). Either way, it's a $20 million company. Nothing has changed except there's now a lot more pieces.


A reverse split says would you like 10 shares @ $1? or 1 share worth $10?? It makes no difference at all.

Usually a reverse split happens because the company feels that the stock has fallen too low to be attractive to investors, or too low to be listed on a certain stock exchange. So they artificially raise the price per share by combining a bunch of shares together.

Nothing has changed except there's now a lot less pieces.

Do you use technical analysis at any point including and between when you are buying and selling securities?

[jpg7n16]

Do you use technical analysis at any point including and between when you are buying and selling securities?

Personally?

No. None.

[Mr Nice Guy]

Personally?

No. None.

Thats awesome. You are like the only person I know that says that. All I hear about is TA these days. Jim Cramer says buy and hold is dead. Im goin crazy over here!

do you have any fundamental analysis books or resources you would recommend besides intelligent investor and Ben Graham books?

[jpg7n16]

Thats awesome. You are like the only person I know that says that. All I hear about is TA these days. Jim Cramer says buy and hold is dead. Im goin crazy over here!

You mean that the guy who makes a living off telling people what is the hot stock that you just have to buy now, thinks that buy and hold is dead??

hmmmmm.... conflict of interest much?

Guess it'd be hard for him to keep an audience tuned in if he just said 'well, Proctor and Gamble is still doing solid business. So keep holding it.' End of show.

The flash gets the viewers. I don't think any of Warren Buffett's portfolio discussions involved sounding horns, and (literal) bells and whistles...

do you have any fundamental analysis books or resources you would recommend besides intelligent investor and Ben Graham books?

hard to say really, I mean my degree is in business finance. So taking those courses along with a few accounting classes, helps me form a better image of what the financials of a stable/solid company look like.

But I do remember that Morningstar came out with a series on stocks that was pretty good. Specifically:

Amazon.com: How to Select Winning Stocks (9780471719588): Paul Larson, Inc. Morningstar: Books

gave some good info on the process of looking at a company and using some method to determine what it's worth. (they use discounted cash flows in the book)

It's a bit easier to understand than Security Analysis. But if you study and understand Security Analysis, I see no real reason to evaluate technical indicators for long term investing. It's all about, "what is the security truly worth?" vs "what is it being offered at in the market today?"

And is the company inherently worth more/less money because the stock price has a 'head and shoulders' pattern over the past 2 weeks? Or because yesterday's volume was super high? I doubt it.

And you'd want to create a portfolio full of things you feel are presently selling for much less than your analysis says they're truly worth (and maybe some that are reasonably priced). Buy them, and hold either forever, or until the price rises in line with the true value (which may never happen). Ideally, you'd find companies that were such good companies that you'd never want to sell them.

If you don't know how to do this, then you don't know how to trade stocks either - so just buy index funds and hold for a long time. Extreme diversification will help lower the risk.


And for what it's worth, buy and hold can work just fine: http://www.tilsonfunds.com/superinvestors.pdf