Tuesday, May 10, 2011

Another Reason Why Share Price Doesn't Matter

Here, we see that Citi just did a reverse share split on their common stock. While it may have cashed out some smaller shareholders (making certain filings and transactions cost a little less) it did little, if anything substantive to increase the value of the stock-other than have a minor repurchase effect.

On the flip side of this coin, we can also surmise that a regular share split (or, share dividend, as some call them) have little effect on the value of the stock, other than making uninformed people feel good about their holding growing, by share count.

On this note, I was alerted to this quote from a fellow message board member:
"Why would anybody own Citigroup when they can own JPMorgan for the same share price?" said Mark Sebastian, chief operating officer of Option Pit Mentoring, an options education firm in Chicago.

"JPMorgan is a much better company. Now there is actual price risk for the stock when it wasn't at $4.50."

Wow, I can't believe the stupidity of this statement. As the board member that alerted me to this article noted, Mark Sebastian is in the management of a company that educates investors!

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