Reverse Stock Split - what would you do?

Question

My husband told me to buy 200 shares of Ciena Corp a few years ago. We did at around $9 per share. So that cost about $2 grand. Then the stock went down to a dollar for years! Since then, my husband died unexpectedly at age 36 - and I could use the money back. They did a reverse split - is this even fair? And suddenly we only own 27 shares! It is worth $30 each right now (so I'd be doing well if I had my original 200 shares) - which is only $810 - about half of what I started with. Should I cash out now, or hold on to some miracle hope that it will continue to climb to 60 or 70 bucks per share so I could come closer to getting my money back? This seems so wrong!

Answer 1

There is nothing wrong other than you made a bad investment. Holding on to it is not going to improve matters any. You of course can hold on to the stock and hope that a miracle will occur. Once in a blue moon they do occur but I strongly doubt that in this case a miracle will happen. Look at the bright side. You did not invest in World Com or Global Crossing. You lost only 1/2 your money not all of it.

Now for the bright side. You are certainly not alone in making bad investments. I have made my share. I did own World Com. So you are better off than I was. Part of investing is being able to role with the punches so to speak. Not every investment will make money. That is one of the big advantages of having a diversified portfolio.

If you can not afford a diversified portfolio, stay away from individual companies and invest instead in mutual funds--much less risk.

Also you can deduct your loss from your income tax. It would have been better to have taken the loss last year but that is water over the dam.

Answer 2

Reverse split will not lessen your equity. You only modify your number of shares owned, but double the value typically. Reverse splits are usually done to consolidate the stock pricing and make it more attractive to other investors. You may see a short term lowering of value, but a long term investment of the stock is supposed to yield higher gains than if it were left at the 1/2 price, double volume.

Your initial investment was $1800. You lost about $1600, or nearly 90% of the value when it went to $1.00 / share. It's currently at $4.05 roughly and they reverse split the stock, to lets say 1 for 7? Now your investment is worth $810 and you've got a net loss of $990.

Well, if you really need the $810, and you cash out, you'll have to pay some brokerage fees, and that can really vary from not too much ($40 or less per transaction) to almost all you have. My advice would be to take a look at their information, it is readily available on yahoo finance. Currently the price is down, but the 52 week high is almost $10.00 per share higher than the current market and it's trending upward. Since you've already taken a big hit and you've got nothing to lose, I'd hold on to it and see where it goes in the next few months.

Good luck, I hope it pays off big for you.

Answer 3

I wouldn't expect too much for a miracle right away, I heard that the CEO sold off about 25,000 shares even though some analysts were saying it should be upgraded to "buy" from "hold". Even so, your $810 is down to about $775 right now.

Personally, I'd get out of it and salvage some of the value, even it were to rise tomorrow. Your situation reminds me of a reverse split I had a couple of years ago. I bought several thousand shares of a company that sold Voice Over Internet Protocol (VOIP) services to businesses. There was some funny business going on and when checking back after a trip I discovered that they shuffled in some different classes of stock, sold out the business to another company, then sold the empty shell of the business, which I was invested in, to some tin mine in Nevada. They had some really nice "paper" valuation, except no one would buy it when I tried to sell. Today, even at cheap Scottrade, that "investment" is worth a whopping 8 cents. Then too, I also have another "forgotten" investment on my books, a hundred thousand shares of some new technology company that did some special analysis of aerial and satellite images and came to the conclusion that the mined out places of Nevada all show indications that there were minerals there. I keep it on my books as a reminder.

Cash out and put it somewhere good. My first rule of stock picking is "Does it make a profit?". My second is "Does it look like it will continue to make a profit, or if it doesn't now, does it look like it will soon?" Bear those in mind when you go shopping for a place for your $700 or so. Good luck.

BTW, you could almost buy a couple hundred shares of Solectron (SLR; see rule 1), or maybe a hundred of James River Coal (JRCC; see rule 2), worth a thought.

Answer 4

Firstly I'm sorry for your loss, 36 is no age to be taken from you.

I guess the question really is 'Do I need that 810 dollars and do I have any faith in Ciena Corp'? You really only have four options.

If you really need that money then sell.

If you have no faith in that company to increase their stock price then sell.

If you dont HAVE to have the money and can get by without it AND think the stock could perform better then hold.

If you don't HAVE to have the money and think the stock isnt going anywhere then sell.

I have no knowledge of Ciena Corp and their history however the reverse split is perfectly legal if done in accordance with SEC rules (assuming they trade on a US exchange).

Answer 5

I'd sell. There is nothing you can do about the reverse split. You can take the capital loss as a deduction on your taxes. I know nothing about Ciena Corp., or its prospects, or even the business that it is in, but the only reason for keeping the shares would be if you have reason to think that the company will do well -- as opposed to other companies, which might do well. It is the nature of stock market investments that sometimes you win, and sometimes you don't.

Answer 6

Yeah, so MarcThyme is just being a 12 year old kid, pay no attention to him as he didn't even attempt to answer your question. James didn't answer your question either. The choice as to which stock you invest in is none of my business, (Marc) and questioning whether or not you did your homework isn't either (James). Besides, quickly glancing at the stock there are some major funds that hold it and not long ago officers and directors purchased the stock at higher prices (at market). Regardless, I'm not sure why the stock didn't open closer to the expected figure. Maybe pre-market hours did something to sink the price? Did you pay attention to that? Do note, however, that it's pretty common for shares to sink after a reverse stock split, especially with cheaper stock prices initially.

Answer 7

Very VERY sorry for the loss of your husband!

"kb6jra" took the words right out of my mouth !!

I would really think about if you absolutely need that little bit of money or can you make it without touching it ! ? !

I have gone through numerous splits both ways and they have all turned out to be in MY benefit in the long run. The stock market can be scary and the more you think about it the more it weighs heavy on your mind to sell. It is ultimately YOUR choice. Posting your question here was a good idea. Look at all the different answers you have to think about now.

I would hang on to it but then I do things differently than alot of people but it works well for ME.

Good Luck !

: )

Answer 8

Hi,

I would suggest that you should find out the reason for the reverse stock split ,if this split is for some good reason then you better hold on or else you can sell them off.

If possible send me some details about the stock ,let me see if i can do any thing for you

Regards
Sayed R. Tabrez

Answer 9

I suggest you to request the FREE DVD "The Smartest Guys in the Room" at Peerflix.

I also suggest you to sell all your Ciena shares.

I can help you for FREE for a while to recover your losses because your husband is dead.

If you have children then you should buy life insurance for you.
If your parents are still alive then you should buy life insurance for them. (A much easier way to become millionaire eventually)

Answer 10

If they have reverse split it's usually a sign that things aren't doing too well, and are expecting things to get worse.

If you need the cash I would take it now.