How a Reverse Stock Split Destroys Wealth [Real Research]

Are reverse stock splits good or bad and what does the research say? I’m breaking down everything you need to know about reverse splits so you don’t lose money.

We’re seeing an explosion in announced reverse stock splits lately, especially with oil stocks like Chesapeake and funds like the USO and UCO. What are these financial tricks and is it just a scam to make the stock look better?

I’ll start by explaining what a reverse stock split really is and what happens when shares split. I’ll show you a real-world example using the USO reverse stock split and what it means for your investment.

I’ll also show you research into 1,600 reverse stock splits and why it could be bad news for your stock.

You see, at its core, nothing really happens in a reverse stock split. It’s still the same company and same stock. There are just fewer shares. You have the same amount of money invested, you didn’t lose shares, it’s just spread over a fewer amount. The most common forms are a 1-for-3 and a 1-for-8 split which means three- or eight-shares merge into one. That’s really the most confusing part, it’s not really a reverse stock SPLIT, it’s a stock consolidation.

I know it can seem confusing at first so we’ll spend plenty of time with a reverse split example and calculation. Then I’ll reveal the true reasons companies do reverse stock splits so you don’t believe the lies. I’ll explain why that research into reverse splits might be wrong and why you might not want to sell your shares before a reverse split.

There are good examples of reverse splits where the shares were worth more after the split like AT&T and Citigroup. Usually the shares are a little weaker after the split, after all nothing really changed with the company, but it gives management time to turn around the finances. Of course, this isn’t what happens with most reverse splits so you need to analyze the shares and ask yourself if management can turn it around.

0:57 What is a Reverse Stock Split?
1:17 What Happens when a Stock Reverse Splits?
2:10 Reverse Stock Split Example: USO Reverse Stock Split
2:52 Do You Lose Shares in a Reverse Split?
3:48 Why do Companies Do Reverse Stock Splits?
5:10 What Happens after a Reverse Stock Split?
6:17 Should I Sell My Stock Before a Reverse Split?
7:07 What is a Stock Split?

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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
#reversesplit #stocksplit #stocks

[egarrod]

GREAT VIDEO!!! Some of these guys on YouTube try to explain it like we’re all rocket scientist!! Thanks for breaking it down, look forward to seeing more of your videos.

[nashvilletennessee]

This is exactly the information I was looking for... But I think the shares lose value. For instance I had 30, 000 shares of RGLS which just did a one for 10 reverse stock split. Before the split, if RGLS had gone to $5 per share I would have had $150, 000. Now if it goes to $5, I only make $15, 000. That is a big difference in value! And in fact, the share price would have to go to $50, or 10 times higher, for me to make the same amount of money. So in my opinion I feel like I got screwed.

[thekatephillips]

Tell me about it! I got blindsided by THREE reverse stock splits in 2 weeks, all ETFs tracking oil. It was brutal, 85% loss in one.
Finally made my losses back today with NRGU. (Holding still.)

[PanieePanther]

I'm still LOLing on that TLC reference 😂

[PassiveIncomeTom]

*Stock splits can be horrible when they happen unless they're great companies like Apple when they did this a few years ago.*

[lhndwhf]

Agree at 6:00, a good example is NOG having a great business plan. They will reverse split just to comply with SEC. Worst will be over with that + oil recovery. then will surge

[gsingh]

Actually, Small investor loses the profit that he is going to make it. It is very risky like this. Thanks for taking the time to explain it.Appreciate that. So how to avoid a future situations like this?

[Skankhunt.]

I was about to jump off a bridge after deciding to cancel my USO order last night and seeing the price going from $2 to $18. Then I saw this video 😅😌 buy you a beer if I see you in NZ lol

[BIG-uzvi]

There is a 1 for 10 reverse split coming on Score Media . I got in at 1.29 for 2000 and finally sold today 5.36 . No way I am going to take my chances at 50 plus a share with this stock. It's not the only game in town ..some folks are treating it as such . .. I'm not saying it won't do well in the future, I love what they have to offer but I'll take my chances on a nice profit now and a dip from. 50 cdn downwards

[andthebecomeflesh]

Thank you for being real and swearing a bit. ❤️

[yetivanmarshall]

Plus a reverse on a dividend stock now pays a div on 33 shares vs. 100. You lose 2/3 of the div if it remained the same.

[kalebyou]

Great content and delivery all round but you get the upvote for the TLC reference. lol

[bubbalawrence]

Thank you, Aurora Cannabis is also doing a reverse split. Loved the TLC reference 😂

[clintjones]

So am I wrong? As a dividend investor you will lose money because you lost sharecount and thus any dividend would not pay you as much. Unless they also increase the dividend dividend investors would lose money and now they have raised the cost to buy more shares making it harder to get back to where you were.

[WakeUpBuildUpLevelUp]

Does a reverse split make a stock/ETF any more valuable to investors waiting to get in?

[kongxiong]

Gold trust fund is doing a reverse split one to two is that a good thing or bad thing

[LordFarquaad]

Is AMLP a hold? Or should we re allocate into other areas

[CS-gzhm]

It's like People saying words like it's not relevant so you dont understand < actually means it's not important they like to use words that you dont understand split actually means truth and easily said. Out of 100 bucks you get half only ! U sell the stock you dont get 100 bucks you get 50 instead

[G]

So, if they do a 1 to 8 reverse split you have 800 shares that go from $1 per share to $8 per share. Now you have 100 shares at $8 after the market makers shorted the stock from $80 to $1. Now they bring it back up to $8 so they can drop it some more?

[fluxxxtasy]

I had 4 shares of USO on Robinhood. Where did they go? Did I even get credit from them? I see no trace of them anymore...