never, EVER, buy a splitter!!
there are some rare, very rare exceptions, but chances are you'll never see one.
mainly, this rule applies to OTC stocks under about $5. but splitter disease is spreading north into higher priced stocks too.
mainly, this rule applies to OTC stocks under about $5. but splitter disease is spreading north into higher priced stocks too.
oh, for those who don't know, maybe i should explain what a split is, huh? okay, there are two kinds of splits, forward split, and reverse split. both suck. and the lower the stock price the worse they suck. splits are notoriously bad in pennies, especially pink sheets, where no warning is required before a split.
let's pretend you have 100,000 shares of fictitious stock "ABCD" at .001 at 10 a.m. on a monday morning. total real value = $100. and then at 10:01 they announce a 1/2000 reverse split. this means that for every 2000 shares you held at 10 a.m. you will now have only 1 share. but that 1 share will have an "instant" value of 2000 times what each of your previous shares had. so you will theoretically have 50 shares at a new value of $2 per share. total real value again = $100. so far so good, right?
but, and i can almost guarantee this, by 10:15 a.m. you'll be lucky if your shares are even worth .25 each. total real value = $12.50, for a loss of $87.50. and, to make matters worse, you probably won't even be able to sell them at that price. and just when you think it can't get any worse, it DOES!! the ticker symbol gets "instantly" changed in a split and you can't trade anything- it takes days to sort it out with your broker. so what happened??
what happened was, splits make traders nervous and they start dumping huge quantities of stock and that drives the pps down. it makes them nervous because splits (reverses) have historically been used by companies to boost their share price and to cover up some real bad balance sheets. more often nowadays, however, r/s are used simply to screw the investor and line the pockets of company officers. they wait for the pps to crash then buy back in.
take a look at JKRI (former JRIV, former JKRV)- but hurry before they split again and change their ticker. it's one of the nastiest pieces of stinking crap i ever had the filthy misfortune to trade. luckily, it was 'way back when i started so i didn't lose that much. the absolute nastiest piece of crap was WTVN (former WFTV)- i didn't lose much there either, but i watched one lawyer lose $120,000 literally in a few heartbeats the morning it happened.
but you can protect yourself, more or less. most of these scumbags are chronic splitters. so if you check their history for splits going back at least a couple years and you see even one, run like hell and warn everybody else! splitting is an addictive way for crooks to make money. you can check for splits by going to nasdaq.com, loading the chart for the stock, set it to show maybe 3 years of data, select the "Splits" checkbox below the chart and click "Update". the chart will then show you splits for that period with an "s" in a circle where they occurred.
alright, so that's step1 in how to screen for good stocks.
next post we'll get further into screening.
let's pretend you have 100,000 shares of fictitious stock "ABCD" at .001 at 10 a.m. on a monday morning. total real value = $100. and then at 10:01 they announce a 1/2000 reverse split. this means that for every 2000 shares you held at 10 a.m. you will now have only 1 share. but that 1 share will have an "instant" value of 2000 times what each of your previous shares had. so you will theoretically have 50 shares at a new value of $2 per share. total real value again = $100. so far so good, right?
but, and i can almost guarantee this, by 10:15 a.m. you'll be lucky if your shares are even worth .25 each. total real value = $12.50, for a loss of $87.50. and, to make matters worse, you probably won't even be able to sell them at that price. and just when you think it can't get any worse, it DOES!! the ticker symbol gets "instantly" changed in a split and you can't trade anything- it takes days to sort it out with your broker. so what happened??
what happened was, splits make traders nervous and they start dumping huge quantities of stock and that drives the pps down. it makes them nervous because splits (reverses) have historically been used by companies to boost their share price and to cover up some real bad balance sheets. more often nowadays, however, r/s are used simply to screw the investor and line the pockets of company officers. they wait for the pps to crash then buy back in.
take a look at JKRI (former JRIV, former JKRV)- but hurry before they split again and change their ticker. it's one of the nastiest pieces of stinking crap i ever had the filthy misfortune to trade. luckily, it was 'way back when i started so i didn't lose that much. the absolute nastiest piece of crap was WTVN (former WFTV)- i didn't lose much there either, but i watched one lawyer lose $120,000 literally in a few heartbeats the morning it happened.
but you can protect yourself, more or less. most of these scumbags are chronic splitters. so if you check their history for splits going back at least a couple years and you see even one, run like hell and warn everybody else! splitting is an addictive way for crooks to make money. you can check for splits by going to nasdaq.com, loading the chart for the stock, set it to show maybe 3 years of data, select the "Splits" checkbox below the chart and click "Update". the chart will then show you splits for that period with an "s" in a circle where they occurred.
forward splits have historically had somewhat better outcomes, but these days even those suck. they're the reverse of a reverse split (you get more shares but a proportionally lower "instant" pps). using the above example, but instead a 2/1 forward split, you would end up with 200,000 shares at an instant price of .0005 per share. and the same events would likely unfold, for much the same reasons.
alright, so that's step1 in how to screen for good stocks.
next post we'll get further into screening.
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