Penny Stock Tip: Stay Away From Stocks About To Reverse Stock Split

There are exceptions but as a general rule of thumb I think it’s better to avoid stocks in the process. I read up on the subject and it seems traders short reverse stock splits like mad. Also stocks I’ve seen undergoing this process rarely raise in price days before the reverse stock split. You don’t have to take my word for it. Look here.

“After a reverse stock split, investors need to be prepared to see the stock continue to fall.”

https://seekingalpha.com/article/3773746-impact-reverse-stock-split

There’s more details at that link but basically stocks tend to fall before and after a reverse stock split. For those of you who don’t know what a reverse stock split is it’s a way to avoid desisting from the stock market. Companies about to be desisted may reduce the total number of stocks they have but the remaining amount will scale percentage wise. This means there’s less number of stocks but the new number is equivalent in value to the old number. For example instead of having 100 stocks for 1 dollar. There would be ten stocks for 10 dollars. Theoretically share holders shouldn’t lose value during this exchange. In reality they actually do because traders are shorting the company. Reverse stock split itself has no real effect on the total value of stock a shareholder holds to my understanding.