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Stock Market Training: What is a Reverse Split? - YouTube
Channel: ClayTrader
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if you're watching this you're probably
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undergoing a reverse split and you're
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just curious what does this mean for me
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that's what we're going to talk about in
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this video so yes in today's video we
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are talking about reverse split
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otherwise known as a reverse stock split
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but like I said if you're watching this
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video then you are probably going to be
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undergoing one maybe you're looking at a
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company that just did one or will be
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doing some sort of variation but what is
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a reverse stock split we're going to
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take a look at it from two different
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perspectives but before we even get
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started the vast majority of the time it
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is bearish now certainly down in penny
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stock land you know you're going to hear
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all about all these great reasons on why
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the company is doing it and this that
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and the other but just reverse stock
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splits is now a forward stock split
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that's fantastic and that's what usually
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happens on big board stocks where price
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gets very high per share and the company
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wants to bring down the share price so a
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forward stock split but with a reverse
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stock split as you're going to see
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that's just because the pen or the stock
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gets so low
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I mean near penny land that the company
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we know we got to bring up or sure price
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somehow and a reverse split is a way to
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do that so for those of you that maybe
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are about to experience one may be
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thinking about jumping into a company
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let's talk about it so we're first just
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going to talk about it from more so the
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company perspective the overall company
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meaning you know their share structure
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and all that so let's just say that a
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company company has 1,000 shares
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available now I realize that this is
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just for math sake so there's 1,000
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shares out there and they are at $15 per
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share so I mean you could get to the
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market cap we're not going to do that
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just from the overall perspective
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company has a thousand shares that are
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traded for $15 each now let's say they
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announced that you know they're going to
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do a reverse split a five to one so what
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does that mean how can you do the math
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well this means that you're going to
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they're going to reduce the number of
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shares out there and by reducing the
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number of shares out there that's
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actually going to prop up and increase
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the share price and we'll go through the
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math here so you can know how to kind of
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calculate
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on your end you know what's going to
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happen with your shares you know what
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are the prices going to be all that good
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stuff so the easy way to do that is just
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you're going to take the number of
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shares that are out there again this is
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from the company perspective you're
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going to take a thousand shares right
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and then you're going to divide that by
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whatever the reverse split amount is
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which is here five so one thousand
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divided by five equals 200 shares so in
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other words at the reverse what happens
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instead of the company having 1,000
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shares out there in total available
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they're only going to have 200 shares
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out there available but that's not where
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it all ends because you got to keep
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everything in proportion so what do I
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mean by proportion that's probably a
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good thing to go into real quick
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but right now don't quote unquote market
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cap is going to be 1,000 times 15 so
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that is 15 so 15 thousand total so just
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keep in mind the number 15,000 so now
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we're going to go down here 200 shares
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so how do you how do we still get up to
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that $15,000 number though well this is
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where what's the new share price going
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to be maybe remember bet but back
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towards the beginning of the video I
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said you know a reverse share is to
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increase share prices so what you're
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going to do is take whatever the price
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is share is in our example 15 and you're
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going to multiply that again by the
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number there 5 so that equals $75 per
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share so now you do the math here and
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you know do that again so we have 200
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shares times now $75 per share and
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that's still going to equal 15,000 so
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they're the same things have changed
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shares have gone down share prices have
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gone up but at the end of the day
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they're equal to one another and I'm
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really kind of I'm trying to drive this
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home because this is where it comes into
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play from what you really care about the
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shareholder perspective so you as a
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shareholder potential shareholder
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whatever you know what's going on from
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urine so for this again keep in mind
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you know all this is still going on for
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you it still pertains to that you know
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the five to one so that still is the
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number that you care about and let's
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just say that as a shareholder you have
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100 shares and this is before the
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reverse what happens so the reverse
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split happens let's do the math again so
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you take the number of shares in this
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case that you own and you got to divide
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it by the five because that's the part
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of the reverse split so that's going to
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equal equal 20 so you may be thinking aw
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crap I just only have 20 shares now
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let's quickly do the math on this so if
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you have 100 shares and they're valued
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at $15 each so you're beginning a number
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so we'll calculate that is what that
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number $1,500 right because you have a
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hundred shares times 15 so the total
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number that you know it's kind of
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sitting in your account what your shares
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are worth is 1500 so you're thinking man
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I got 20 shares how will remember the
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share price is now going to go up so
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nothing different there the sir price is
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still 15 so you're going to multiply
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that by five and that still gives you
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$75 per share so when you come over here
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and do the math you're going to see that
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your 20 shares which you now have times
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the new share price which is $75 that is
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still going to equal $1,500 so the big
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question that I always get annoys see is
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you know what's going to happen to my
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shares you're going to lose shares but
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as far as the value of your shares and
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concern nothing changes because it's all
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proportionate now the problem with that
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is okay well the shares go down so if
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the shares start going down again and
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again and again the company can do this
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again
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and then you're going to lose more
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shares but it's not going to adjust
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properly so of theoretically a company
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can reverse split you multiple times
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multiplying multiplying and then all the
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time you're going to have like a half a
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share left but that's going to take
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place over time now another thing I get
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is hey clay why are you doing a video
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chart analysis on this they're doing a
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reverse split it doesn't matter
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instead of you know a chart pattern
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looking like this let's just say so
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here's a chart pattern
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and instead of having 15 dollars up here
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on the chart after the verse split it's
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still going to look the exact same the
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only difference is instead of this being
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at $15 this is going to be at $75 so
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from the charting perspective nothing
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changes because it all adjusts
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proportionally so that's always one of
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the my favorite things when a troll
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tries to hey idiot they just did a
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reverse split they're going to be doing
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a reverse split you can't do a chart on
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it anymore could you make it any more
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obvious that you just don't have any
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idea what you're talking about so
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charging wise nothing changes
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besides the prices but as far as the
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pattern is concerned that's going to be
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the same so that's what a reverse split
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is that's kind of how the math works and
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so for you nothing changes other than
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the amount of shares in your account
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will go down but the share price will go
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up but I mean if you've seen companies
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that have a history of doing this over
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and over and over again major red flag
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like I said mostly you see reverse
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splits in the world of penny stocks I
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suppose you could have them on some big
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board stocks too but usually big board
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companies are doing forward splits but
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that's what's going on and it's despite
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what most people are you know what a
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penny stock management or you know the
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pumpers on message board may say reverse
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splits they're not a good thing you know
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if a stock get to that low where the
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company needs to artificially prop the
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stock back up but why isn't the stock
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being propped up by just good old
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company fundamentals good old you know
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all that sort of stuff now you're going
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to hear accuses on this then the other
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white needs to be the case but just be
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very careful with it but this is to
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answer what you're why you're I'm
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assuming you're watching this video what
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a reverse split is and how it all breaks
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down any questions or whatever leave
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those down below and I'll do my best to
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help you out so hopefully you found this
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helpful and you know if you're you know
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if reverse split is on your mind at all
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you
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