My grandfather, while cleaning out a drawer, came across some stock certifcates issued in 1968 from Western Holding Company. He took them to his bank who sent them to a securities corporation for research, and they sent them back with the above explanation.
Could someone please explain what that means?
Oh - and could you explain it like you’re talking to a six year old? I need to understand it well enough to explain it to him, and I only know enough about stocks to know I’ll stick with my employer’s investment program til I have to learn something about them
Basically, the company shrunk in value. Here’s an example of what happened (I just made up the numbers for the example):
The shares were bought, they were worth $10/share.
The company didn’t do very good, so the shares went down in value to $1/share.
In order to keep the shares at a reasonable price, the company did a 10 for 1 reverse split. This means that everybody with 10 shares traded their shares in and got 1 new share back. The new price was back at $10/share, but they had 1/10th the number of shares. But your shares were in a drawer and you weren’t paying attention to mail, so you kept the original shares.
A few years go by, and the price again plummets from $10/share to $1/share. The company does another 10 for 1 reverse split. Again, shareholders turn in their 10 shares for 1, but yours are still in that drawer.
Now, those original shares you have got devalued so that for every 100 shares you had, you own one current share. So say the current price is $1/share. That means each of your old shares is worth 1/100th of the current price, or 1 penny/share.
As I say, the above numbers are just an example. But basically, the problem isn’t that the reverse splits happened. The problem is that the companys value went way way down.
They may not be totally valuless, though. There’s a hobby called scripophily, whose practitioners collect old stock certificates. http://www.bob.com will get you started.
I had a friend who was cleaning out his fathers place after he died and found a large amount of stock certificates. There was 500 shares of this and 200 shares of that in 10 companies all bought back in the 60’s and 70’s.
The guy was sooooo excited thinking that with splits and everything that he might be a multi-millionaire (he inherited everything).
He gave it to me to research and EVERY SINGLE ONE was bankrupt and worthless. Every one. He was so heartbroken.
I once had this guy walk in with these really old certificates. They were like “Western Railway Electric,” or something, and he had 100 shares.
Turns out this company invented train signals, and after five or six permutations became Allied Signal Corporation. That certificate for 20 shares turned out to be about 4,500 shares of Allied Signal, or about $200,000 at the time.
Sorry, I don’t have much respect for people who are rich by virtue of having rich parents, and I especially don’t have respect for someone who is described as “heartbroken” for not hitting the lottery. But the lowest form of respect I reserve for someone who is heartbroken, not because their father died, but because they didn’t get that undeserved private jet.
The OP was referring to an elderly gentlman who had the misfortune of investing in a bad company, not some young punk who thinks he’s hit the powerball on his dad’s grave.
