AIG Plummets: Didn't the Reverse Stock Split Cause it?

For those who commented that I didn't know what I was talking about in my recent article about the AIG Reverse Stock Split of 20 to one, here's what Jeanine Poggi of Street.com said today of the split action, which has apparently gone through:

Meanwhile, investors are awaiting a reverse stock split that is expected to come into affect (sic) later today. This would mean if you own 1,000 shares you now own 50.

AIG will initially multiply the share value by a like amount, so investors will retain their equity, but it's unlikely they can grow their investment.

Almost verbatim (in context) of what I said in my "unprofessional" analysis published on Saturday. Interestingly, the number of hits on that article increased more than two-fold today, unfortunately too late for investors to vote against this ill-founded move.

David Goldman of CNNMoney.Com said, "Shares of AIG tumbled Tuesday afternoon after shareholders ratified a 20-1 reverse stock split, which will take effect at 5 p.m. ET." I wonder why? I wonder why other business journalists from the New York Times, the Washington Post, the Wall Street Journal, CNN, Fox News, MSNBC, CNBC, NBC, ABC, CBS and reports on Anderson Cooper, Lou Dobbs and The Today Show never highlighted this split as a disastrous move? Where were the notes on Facebook or videos on YouTube?

I stayed with the stock, which is now just a penny more than I bought it in March and will ride it for the time being. I'm just not expecting a big payday, and I'm flabbergasted at why the stock essentially soared since last March until a week or so ago when news of the reverse stock split became public, considering that the "expert" commenters who have been refuting me said that buying and selling stock is solely based on the actual value of the company.

Folks, AIG hadn't won the lottery in March, April and May and the news forthcoming about its actual worth hasn't been alarming the last week or so.

The rule is, I guess, that there are no real rules vis-a-vis the stock market. I'll still wind up with a profit, because I bought my stocks at a very low rate. Pity those who didn't and also those who might have also done so, but freaked out and panicked the last couple of days.

UPDATE: So the split happened and guess what? The stock dropped over five dollars Wednesday (July 1) from its new price of $23.20 -- down more than 22%. What kind of brainiacs come up with these decisions? Is a class action lawsuit in the works? And is Citigroup, which has issued proxies with the intent of permitting its Board of Directors to effect a reverse stock split, paying attention?

Michael Russnow's website is www.ramproductionsinternational.com

Comments

[rogerthat21]

We need to stop the corruption by Goldman, bank of Amerika, and Jp Morgan. Stop the Geithner and bernanke. .

Obama's policies may not be working as well as many had hoped:
1st 100 days - There are 2.9 million more people unemployed in May than there were unemployed in January. The unemployment rate went from 7.6% to 9.4%. Since May 2008, we have lost 5.5 million jobs. The biggest losers were:

Manufacturing 1.5 million lost
Finance & Prof Serv 1.5 million lost
Construction 1.1 million lost
Retail & Leisure 1.3 million lost

good political & economic articles: http://iamned.blogspot.com

[dukeitout]

Michael: In retrospect, I believe the reverse split really did cause the after- split share price to tank. It's irrational that this would happen but it did. I sold at $1.43/sh two days ago and I still don't know why other than I had an uneasy feeling about owning this crummy stock at $29/share (20 times 1.43.) It was dumb luck but wouldn't you know I bought it back today at $ 19.10 and am currently down a little again. Won't we ever learn?

[msjimmied]

This market is chock full of bargain hunters and traders, there are few retail investors active in the market other than them. Buy and hold is dead. So, when even some blue blood stocks are below 20 bucks, why would they buy AIG, the company still has that carrion like smell. AIG got a lot of attention from the players at a buck something, at 20, its dead. You could buy a thousand shares of something with potential for a quick return, or you could buy 50 of AIG.

In this market, its the most bone headed move I have seen yet. Give it time...with the interest it gets, the price will be back down to a "playable" range, somewhere below 5. Citi, take note....

[tailgateshirts]

Market moves are based on percentages, and if there are a ton more of outstanding shares (pre-reverse-split) it would be harder to move the stock, say 20% in a day.

Technically a stock priced at 30, going up 20%, you end up at 36, but at $1 its $1.20.

If you have 1000 shares at $1, it goes up 20% to 1.2, you have the same amount of earnings as if you have now 50 shares and the stock was at 20 going up to 24. Either way you have a profit of $200.

Less people may be inclined to move into the stock at $30, due to the risk factor, but its moves should be larger moves (# wise, not % wise) with less shares outstanding. It may look prettier for a stock thats at $1 to go to $2, but the chances of that are just as high as it being at $30 and going to $60 since it would take more participants at $1-$2 range to move the stock

[johnnygoodwud]

i too own AIG. bought it at .49 and twice sold rebought and sold again. i believe the price runup was hedgefund guys. you weren't buying value, but speculation, plain and simple. the reason there was so much action when it was $1-2.00 is because of the spread, the precent of profit. when AIG was at say $1.60, it could fairly easily go to say $3.20 and you could easily double your money. at $20.00 it has to go to 40.00,,,,,,,,,,,,,

[rogerthat21]

Take back the trillions of $$$ given to the banks, who just sit on it and make it totally ineffective then start government incentive to create realistic industries that give employment and generate real productive income, some of which would hopefully be from exports.

Every other country, especially China and most of Europe have goverment incentives to protect it's industries. No matter what you call it it's a form of protectionism and its inevitable. We should stop being naive and take care of our own house. The only ones who win if we don't are the multinational corporations who don't care where they get their hand out.

hat tip to: http://heavysidetrade.blogspot.com/ for the good articles

[smchp]

The key thing the author of this article seems to miss is that the 'average' price over the long term generally reflects the real value. They seem to think that because the price plumeted in a week that means it's not true.

[trimom]

Uh, no. The stock price at any point in time reflects the expected future cash flows and the riskiness of those cash flows.

Average prices are used for some accounting calculations but are not a measure of value.

[blaising]

No problem mon.

The President gave AIG to Fox News anyway.

Let them figure it out.

Next...

[Zhonni]

I use to own AIG stocks and sold at a modest gain and have been watching it ever since. I was starting to think it is about time to buy again but I had a hunch it would touch a dollar or so. I knew I would definately buy at $1.05.

Anyways, I logged on to scottrade as usual and my heart sunk when I saw the price. "Why didn't I buy AIG when I thought I should have days ago? I could be sitting pretty right now". I hurried to read what must ahve been the reason for such an astronomical appreciation. Well, it was a reverse stock split. Not only any kind but a 20:1. That explains it!

[Shwazy]

Don't people realize that a stock split or reversal of same has absolutely no impact on the real value of the stock they hold?

Are people really that dumb?

[trimom]

No, they are not dumb. It does affect the per share value of the stock that they own though.

[plaidsportcoat]

the people who post on finance stories and the mostly men who are finance commentators have horrible personalities. even when they're wrong, they call everybody else dumb, then they never apologize. i hope they alldie

[loxleychase]

The point of owning stock is to make a profit. If I buy 100 shares at $1.48 per share and the shares increase in value to $22.00 per share, I expect to have $2200.00. That is a gain of over $2000.00 With the reverse split I would now only have 5 shares. While I may not have lost any thing I can't earn anything either at this point.

Sociapaths and psychopaths think everyone is stupid. Why in the hell would I invest in AIG after this reverse split knowing that it is just a move to make AIG look more attractive. Apparently the folks at AIG have not come to the realization of the definition of insanity. They are also in denial about their intelligence. Apparently the text books they read had some limitations to them and they don't have the wisdom to move beyond the crap they read in those texts.

They need to get someone who can think outside of the box to move AIG to a better place. More of the same is not going to do it this time and the sooner they figure that out the better off we will all be.

[Ian Hardin]

As of 25 minutes ago, Scottrade won't let their account holders sell their AIG stock...I'm literally sitting here watching 2000 shares turn into 100 and then nose-dive.

[regina1]

Looking at the day chart, AIG plunged to $1.08 in the first half hour of trading before the shareholder meeting, probably because news broke in an SEC filing that the company still had more than anticipated exposure to credit default swaps--which would cause perceived future value to decline. After the shareholder meeting, the stock recovered to $1.21, falling at the end of the day on profit taking to settle at $1.16. Any uncertainty that might be a result of proxy issues would have been priced into the stock at the time of the proxy filing, which should have been at least 6 weeks prior to the meeting.

[Michael Russnow - Huffpost Blogger]

Thank you, Regina1, except it's a bit too coincidental that suddenly, just as a shareholders meeting occurs and after the last weekend of proxy voting for the reverse stock split, that the stock went down 13 cents Monday and then 17 cents today.

There has been all sort of news about the company and this reverse split is a very dramatic change, a view which was supported by Jeanine Poggi of Street.com (quoted in my article above).

Hopefully, the dust will settle and investors will calm down, but I refuse to believe the reverse split had only inconsequential effect on what just transpired.

Plus, Citigroup has now asked for permission to do a reverse split of seven possibilities, ranging from 1:2 all the way to 1:30, which I find incredible. The Board of Directors has asked their shareholders to vote on this by September and they will have until next June to decide whether to do so.

Don't these companies realize that it sends a poor message, i.e. that an artificially inflated stock price is not going to fool the institutional investors they are seeking to return to the fold?

BTW, I note that one of the major items AIG was pushing, authorizing several billion more common shares, went down to defeat. Pity the shareholders didn't do the same with the reverse split.

[trimom]

Your argument is basic Finance 101, I cannot believe you are taking such flap about it. Soldier on.