wearmanyhats

Royal Bank of Scotland (RBS) is probably one of my favorite stocks to watch these days, probably because it was offering a good dividend, then stopped, which is smart whenever a business is in trouble.  It’s one of those companies that prides itself in being able to figure out problems, if you believe its advertising.  But most of all, it has been acquiring new accounts like crazy.  All that advertising pays.  The problem: subprime mortgages and derivitives are practically killing it.

So what does a company do when the stock gets so low it looks like it’s involved in a limbo competition?  Simple.  It reverse splits!  Now this is painful to any stockholder who had even the most remote faith in the company because, in simple terms, 100 shares are suddenly hacked to 50.  That isn’t a problem, but what was once $1.92 is now at $19.50 and falling.

There are a certain number of “I told you so!”s that would be well deserved here,  except that it isn’t against the law to believe in a company that has had a temporary setback.  While I said RBS looked like a good buy, then told folks to drop it after some really bad news, I kept it.  I’m ever the optimist.  In payment for my loyalty, I’m going to lose more money up front.

Delisting would have been less favorable, though.  Now I have at least some hope in the future of this turning around.  In a perfect world, the stock will go up like crazy, split, and bring me back money by the trainful.  Since I no longer have a great amount stuck into it, I’m going to wait for that sunny day.

Now the moral of this story is simple:  be prepared to either get socked with a reverse split, or watch out for a company being delisted.  The latter of the two is absolutely fatal to anyone who wants to recover their money.  I’ll take the reverse split any day.  It stings, but ten years from now, I may be glad for my optimism.

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