AMD Stock question...

[imported_cinder]

My friend owns somewhere around 800 shares of AMD stock that he bought at about 6 bucks a share sometime last year. With this new split, will he lose more money by just letting the company split or will he lose more money just selling off what its worth right now, or will he gain money in some way from this?

I'm definitely no genius when it comes to stock markets and investments. Any information would be great. Thanks.

 

[Jeff7181]

A split by itself doesn't change the value of your investment. If he has 800 shares at $6 and it splits, he'll have 1600 shares at $3.

 

[Zach]

Originally posted by: Jeff7181
A split by itself doesn't change the value of your investment. If he has 800 shares at $6 and it splits, he'll have 1600 shares at $3.

qft

 

[imported_cinder]

Well the stock isn't worth $6 anymore. Its worth just under $4. Also, I didn't know the stock will just split evenly if the company splits in 2. I guess I just don't fully understand the situation. Now is the time to learn I suppose.

 

[Insomniator]

I don't think what was said is correct, stocks usually 'split' when they do really well, which is different than what the OP is talking about. I however, am of now help with this situation.

 

[ViRGE]

The stock isn't splitting, the company is. The new Foundry Company will not have stock, your friend will continue to own 800 shares in AMD and that's it. It should be noted that the investments setting up this deal are diluting his shares, so they will drop in value some.

 

[Jeff7181]

The main reason a stock splits is if the company thinks the high price is deterring investors. One of the benefits of a split to investors is best illustrated with an example.

If stock XYZ is trading at $50 per share and has an average daily trading range of 5%, that means the difference between it's high and low on a given day is $2.50. When a stock splits, the price per share is divided in half... generally, the average daily trading range isn't divided in half, although it doesn't quite stay the same. So after the split, the average daily trading range may not be $2.50, it may only be $1.50. However, $1.50 is 6% of the stock price. So before the split, you had the potential to make around 5% per day, after the split, you have the potential to make about 6% per day. Of course, you also have the potential to lose 6% vs. 5% so whether or not this is a good or bad thing depends on your trading style and competency.

 

[Schfifty Five]

Originally posted by: cinder
Well the stock isn't worth $6 anymore. Its worth just under $4. Also, I didn't know the stock will just split evenly if the company splits in 2. I guess I just don't fully understand the situation. Now is the time to learn I suppose.

Well, Jeff7181 is still correct.

If the stock was splitting and was currently at $4 and the split was 2 for 1, then he would have 1600 shares worth $2 each. His total loss/gain would, at the time of split, still be the same total value.

1600 x $2 = $3200 value
800 x $4 = $3200 value

If he bought in at $6, then his original purchase price was 800 x $6 = $4800.

$3200 (current value at time of split) - $4800 (original value) = unrealized loss of $1600 at the time of split.

 

[Jeff7181]

The other reason for a stock split is to ensure liquidity. If a particular stock has an increase in volume, the company will benefit greatly by ensuring there are enough shares so that everybody who wants to trade the stock, can.

 

[sandorski]

At any rate, hang on to them. It's too late to Sell now.

 

[imported_cinder]

Originally posted by: sandorski
At any rate, hang on to them. It's too late to Sell now.

I assumed that is what he needed to do. Who knows, this company split could eventually be good for his stocks in the coming years eh..

 

[Jeff7181]

Originally posted by: cinder

Originally posted by: sandorski
At any rate, hang on to them. It's too late to Sell now.

I assumed that is what he needed to do. Who knows, this company split could eventually be good for his stocks in the coming years eh..

That's the plan... public companies do things with the intention of increasing the value of the company for its shareholders.