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  • Tokyo Stock Exchange fiasco

    I tried discussing the articles but it's an invalid link hence this thread --

    I'm not an expert investor/financial person by any means. However, I have a question --

    From what I understood, most stocks split (or do something similar) when the individual share price gets too high. I'm not understanding why the stocks mistakenly sold at such a low price were valued so high. How could one stock be worth $9000 US (or whatever the value would be). Is this normal? I guess I've just heard about stocks reaching $100 or $200 and then doing something to bring the individual price per share down (a payout, split, etc.). Can someone explain? In layman's terms please; as you can see, I'm no expert...maybe not even reasonably well-versed. Sorry.

  • #2
    Originally posted by person
    I tried discussing the articles but it's an invalid link hence this thread --

    I'm not an expert investor/financial person by any means. However, I have a question --

    From what I understood, most stocks split (or do something similar) when the individual share price gets too high. I'm not understanding why the stocks mistakenly sold at such a low price were valued so high. How could one stock be worth $9000 US (or whatever the value would be). Is this normal? I guess I've just heard about stocks reaching $100 or $200 and then doing something to bring the individual price per share down (a payout, split, etc.). Can someone explain? In layman's terms please; as you can see, I'm no expert...maybe not even reasonably well-versed. Sorry.
    I don't have the story to which you allude, so I'm only going on intuition here. First, what is expected with stock splits is for the stock to rise to an overall value greater than 100% (so 50% goes to 60%, and the other 50% goes to 60%). I'm not so sure that is going to happen post 2001 so much now. Second, with Japanese stocks, some valuations are shockingly high. I often wondered if that was because the stock hadn't been watered down by being over-issued, and was mostly in the hands of a few investors.

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    • #3
      Originally posted by Nick Halliday
      I don't have the story to which you allude, so I'm only going on intuition here. First, what is expected with stock splits is for the stock to rise to an overall value greater than 100% (so 50% goes to 60%, and the other 50% goes to 60%). I'm not so sure that is going to happen post 2001 so much now. Second, with Japanese stocks, some valuations are shockingly high. I often wondered if that was because the stock hadn't been watered down by being over-issued, and was mostly in the hands of a few investors.
      Thanks. If you want to see the news articles, just look on here (to the left side actually) or under the Japan News tab. Maybe that will give you more info.

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      • #4
        Just saw the story at the GP News (I didn't have that part of the page displayed before this, sorry). That doesn't sound necessarily high for Japanese stocks. But wow, that was one huge mistake.

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        • #5
          Originally posted by Nick Halliday
          Just saw the story at the GP News (I didn't have that part of the page displayed before this, sorry). That doesn't sound necessarily high for Japanese stocks. But wow, that was one huge mistake.
          Mizuho has to buy back some at 910,000 yen/share or something like that. Regardless, even 610,000 yen sounds unreal to me. Share prices (even Microsoft, etc.) are usually no more than $100...or am I totally wrong about that? 1000s of dollars for ONE share sounds...amazing to me. Is this something only companies do? Individual investors pay that too?

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          • #6
            actually the value of the stock is set at the price the corporation sets it at. Multiply the number of outstanding share by the value of said share and you get the company's valuation.
            So a stock may trade at ANY value. Some stocks trade for 10 yen, others 10,000 yen and still others 100,000 yen. It all depends on the decision makers and the market.
            IF a company wants to keep its price high, then so be it. They don't split the stocks and create more paper. A great example of this is Berkshire Hathaway in the USA which has a per share price of many thousands of dollars for EACH share.

            I am no expert, but I am frankly shocked at how putrid the "modern" J stock system is. I was considering an investment in Japan, but after this latest fiasco ? no way.

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            • #7
              On the one hand, splitting the stock does make the price per share cheaper (but neither hands nor takes away anything directly from the current stock holders--if you owned 2% of company's outstanding common stock before the split, you still own 2%). OTOH, in a bull market or with a company that has a great outlook, the stock split tends to increase the company's overall valuation because people pile into the stock. Another way a company manipulates the price per share of its stock is the 'stock buyback'. More about splits, see below:

              http://www.sec.gov/answers/stocksplit.htm

              Stock Splits
              When a company declares a stock split, the price of the stock will decrease, but the number of shares will increase proportionately. For example, if you own 100 shares of a company that trades at $100 a share and it declares a two for one stock split, you will own a total of 200 shares at $50 a share after the split. A stock split has no effect on the value of what shareholders own. If the company pays a dividend, your dividends paid per share will also fall proportionately.

              Companies often split their stock when they believe the price of their stock exceeds the amount smaller individual investors would be willing to pay for the stock. By reducing the price of the stock, companies try to make their stock more affordable to these investors.

              Although many stock splits are two for one, companies can split their stock in any number of ways, including three for one, three for two, and so forth. A stock that has split in the last 52 weeks will be identified in newspaper stock columns with an "S" next to the company's name.

              http://boscia.com/a260pages/Group07/splits.htm

              So what is all the hype about surrounding stock splits?

              There are numerous explanations, although research indicates that, for the most part, stock splits have a positive affect on the stock price. Rice University professor, David Ikenberry, conducted a study of 2,750 companies from 1975 to 1990, which found that, on average, shares rose 3.4% in the days just after the stock split. Moreover, Ikenberry's study showed that, over a three year period, split shares outperformed non-split shares: by 8% in the first year after the split, 9% the second year, and 12% in the third year. (see graph).

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