I had an extra few hundred dollars that I wanted to use for a quick and easy investment. Started looking into stocks that were priced at less than $2 so I can get more “bang for the buck”.
I found a company called DryShips, Inc. This company was a shipping company that had a 52-week high of over $3,200 per share, based on Yahoo Finance.
I believe the price was around $1.98 when I started looking into them. With a 52-week high of over $3,200, I did a little bit of research. Based on reports, the dividend & yield was high so I could potentially draw in some income. I hedged lightly on the numbers and looked at the company’s strategy.
It was a rebuilding year for them and they were raising money to purchase new vessels. It was a growth play. I purchased 300 shares. Who knows, maybe they’ll jump back up to $3,200 and make almost $1 million dollars.
It wasn’t long after the investment when I saw they were doing a 1-4 reverse split. If your’e not familiar with what this is, this means the company will be giving shareholders 1 share of stock for every 4 they own.
In other words, if you owned 300 shares, after the reverse split, you now own 75 shares (300 divided by 4). The value remains the same, it’s just less shares. So, if 300 shares were worth $1 per share, it’s share price would be around $4 per share at 75 shares; still worth $300.
When this happens, the idea is to increase shareholder value and hope the stock price entices more investors to purchase the stock. Stocks below $2 aren’t as respectable or attractive to investors as stocks that are going for $10.
A month after the 1-4 reverse split, I got news that the company was now doing a 1-7 reverse split. That means, my lowly shares of 75 will now be 10 shares. I should’ve sold, but I didn’t.
If you use Scottrade, they charge you $20 for newly issued stock when this happens. This would put me a total of $40 out that I’ll list as a negative hit on my income statement.
As I’m writing this blog, the stock price is at $1.19 after another announcement of a 1-7 reverse split.
At this point, my $600 investment diminished to $2.43 after transaction fees and a stock price of $1.34; sold the morning after the 1-7 reverse split announcement.
The stock market might seem fun in the movies, but in real life it may not be all sunshine and rainbows.
I do have wins in other stocks, but you have to have a proper strategy when going into it. This play was an income strategy for me. They paid out a high dividend rate at the time, but I didn’t know they would keep splitting the stock to push me out of their investment pool.
Regardless, lesson learned. Be weary of stocks that boasts a 52-week high of $3200 with a current price of $1.98.
**DISCLAIMER** I am not a financial advisor or providing financial advice or legal advice. I am sharing my experiences for entertainment purposes ONLY.
**DISCLAIMER x2** I am not bashing the company and am no longer an investor in DryShips, Inc. I never wish demise on any company and hope they end up flourishing.
For more information about Scottrade, visit http://scottrade.com