Many people have margin accounts, many of them at unacceptable levels. Unacceptable to the Federal Reserve and to the lenders, so they are being forced to sell stock to reduce debt.
This is not normally considered a happy circumstance. People have to sell stocks which they think are perfectly good. They have to choose a stock to sell, both of which they think have equally good prospects. Buyers might have less awareness of the value of the stock, so won't buy until it is REALLY cheap. So sellers have to take what is a distress sale price.
Which stock should a forced seller sell? Should they sell Techniclone, which is not allowed to have any margin set against it - I still have 1500 shares in my account which a niece bought and it says "cash" beside it? That means no margin allowed. So, people who have to sell a stock to reduce debt, can sell less of their dearly beloved stocks if they sell the one that can't have debt held against it. Or should they sell Qualcomm, with equally good prospects, but against which they can maintain a full margin? So they keep Qualcomm and sell Techniclone. That means Techniclone's price goes down.
They also choose Techniclone to sell because it is now in delisting territory. Some people, despite the alleged joys of 'pink sheets' whatever and wherever they are, think that it is more desirable and better for liquidity and stock value recognition to be listed on Nasdaq.
If Techniclone didn't have so many shares outstanding, the value of the company would be shared among fewer shares. If you share $60m of company value among 6 million shares, you have $10 in value per share. If you share the same $60m value among 60 million shares, you have $1 in value per share - less delisting value, less marginable value, less excess broker spread, less institutional recognition, and the other of the 10 reasons, giving 63 cents per share. I know those millions are not exactly right, but it makes the arithmetic easier.
About where it is right now.
Of course, there is a mystical school of theology which chants "reverse split evil". "Reverse split destroys companies". They are wrong; bad product ideas and poor management destroys companies. If the products are sound and management is sensible, then there is no problem. Of course, what people believe is what matters. So, if they believe the world is flat, then they will behave as though it is. If you tell them you are going to use their money to sail around the world, they will refuse to finance the expedition. Until the belief is changed, the flat earth society will muddle along in their village. They won't even let the Chief take a holiday for a few days.
Maurice |
