There are many stocks that don’t experience any volume activity on a trading day. A recent example of a stock with no trading activity is EAGL. That stock didn’t experience any activity neither on Friday nor on Monday.

Take a look at the Google chart for the above stock, and you can see that the days where the stock had no volume are skipped. In short, when a stock has no volume on a trading day, then its price won’t change whatsoever. Now since the volume is nothing, it means that the stock is completely illiquid, which in its turn means, that any sell or buy transaction, regardless of the size, will significantly deflate or inflate the price.

I would avoid stocks with low or no trading volume at all costs, they are hard to sell, and the significant difference between the ask and the bid doesn’t usually make the stock worth trading. C and BAC (the latter is a stock that I really hate) both have a difference between the bid price and the ask price of only 1 cent. So, if you buy a 100 shares of C, and your commission is only $20 (both ways), then you only need to wait for the stock to increase 22 cents in price in order to start making a profit. If C was one of those bugs bunny stocks, then it would probably have to increase for more than 40 cents before you being able to make a profit.

There’s something that I forgot to mention, when you buy/sell such a stock, you have to wait, sometimes for the whole day before you find a seller or a buyer, and usually, the buy price or the sell price are then completely different than those you thought they were when you first made the transaction, so beware! (I experienced this problem in two stocks: CVBF and BIOS, but the wait was for only a few minutes, because they do have a few hundred thousand shares of daily volume, but imagine if you’re trading a stock with only a few hundred shares of average daily volume).

Again, stay away from stocks that have little or no volume, it’s not fun when you can’t find a seller or a buyer!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

Now that AIB is shown as having a zero dollar value on Google Finance, I thought that an appropriate question for many investors would be, “what will happen when a stock hits a zero”?

Let me answer this question…

When a company issues shares to be traded in the public market, its ultimate aim is to raise cheap money (to expand the business, for example). In this case, cheap money means money at no interest whatsoever. For example, let’s say a company wants $10 million dollars to build a plant. The company decides to go public, so it creates a million shares, each trading at an initial value of $10. Assuming the company sells all million shares in the market, the company will raise $10 million dollars (of course there are listing fees and other fees to be taken into consideration, but for the sake of simplicity, we are going to ignore them). Now the company has borrowed $10 million dollars from investors at 0 percent interest. The investors fund the company because either they think it will pay them dividends, or they think that the stock price will go up. In any case, the company now has the money.

Now the performance of the company directs the price of the stock in the market, if the company is performing well then the stock goes up, if the company is performing poorly, then the stock price will go down. If the company goes bankrupt (files for Chapter 11), then the stock price will drop to zero or, at best, to a few cents. In this situation, the NYSE/NASDAQ will halt its trading and all the investors will lose their money (of course, investors can sue the company, but that usually doesn’t lead to anything). So, when a stock hits zero, it means that the company is bankrupt, and has lost all the money that its investors put it.

Now you may ask this question “Isn’t this a scam?” Well, think about it this way, let’s say you gave $1,000 to a friend of yours because he needed the money to do a business. 2 days later, your friend died, and unfortunately, your friend has no kins whatsoever – no kids, wife, etc… This is the same situation, you gave some of your money to a company (instead of a friend), the company died, and now you lost all your money. Now as for the “scam” part, there are quite a few companies that go public (I can think of some) for the sole reason to steal money from the investors by convincing them that the company has actually a feasible business plan that will generate a lot of money to its investors. If you can prove that a company did this to you, then you can sue its board (who probably made a lot of money out of this scam) and win.

In a nutshell (and to conclude), here’s what will happen when a stock hits zero:

- The stock is booted from all markets, including secondary and OTC markets.
- All the investors lose their money.
- The company files for Chapter 11.

After my post on AIB delisting itself from the NYSE yesterday, I was wondering what will happen to the investor’s shares when a stock gets delisted from either the NYSE or the NASDAQ, so I just did research on this topic and I will now share my results with you!

Essentially a company is delisted (or delists itself) from the stock market for the following reasons:

  1. The company can no longer maintain the listing requirements. This typically means that the stock has dropped below the $1 level for an extended period of time.
  2. The SEC (the US market regulator) has determined that the company is deceiving investors. For example, the financial reports that the company is submitting are fake and/or misleading.
  3. The company willingly elects to get out of the stock market. This is the case of AIB last week. Usually this means that the company feels that it can no longer maintain its listing requirements on the long term.
  4. The company is filing for Chapter 11 (e.g. the company is going bankrupt).
  5. The company is receiving a buyout from another company.

The last case is the best case scenario for the shareholders, because when a company receives a buyout, its stock spikes on the last few days of trading, and investors can sell their shares at a very high price. Those who do not sell will be offered one of the following (they will be notified by mail on what will happen to their shares):

  • Shares in the new company. The amount of the shares will be equivalent to the total amount of their shares based on the buyout plan (for example, if the company decides to buy another company for $10 a share, and an investor owns a thousand shares in the latter company, then he will be offered $10,000 worth of shares in the former company)
  • Cash equivalent to the number of shares multiplied by the price per share offered by the buying company
  • A mix of shares and cash equivalent to the number of shares multiplied by the price per share offered by the buying company
  • Investors are always ecstatic when their company gets bought by another company…

    Now as for the first 3 cases, here’s what will happen:

    • The shares will still exist, however, they will no longer exist on the NYSE or the NASDAQ. They will be trading automatically on the OTC Markets, which means that the stock will be officially labeled as a penny stock.
    • The stock symbol will change. You will be notified by the company of the new stock symbol.
    • The stock will be priced at the same closing price of the last trading day on the NYSE or the NASDAQ. However, the stock price will instantly collapse because all the investors will start jumping ship. OTC markets are bad news.
    • My broker doesn’t provide me with the functionality to trade stocks on the OTC markets, and I suspect this is the same for most brokers. This means that if you want to get out of this stock it’s not as easy as entering the number of shares, entering the stock symbol, selecting “sell” as type of transaction, and clicking on submit. It will most likely be a logistical nightmare to get out of these shares.

    As for the 4th case, when a company files for bankruptcy (chapter 11), then the stock will be worthless and you will lose all your investment. The only thing that you can do at that moment is suing the company.

    Some tips:

    • It is always wise to avoid stocks hovering around the $1 level, and you should immediately sell your shares when the stock drops below $1, even for a minute. The stock can lose 20% of its value the second it starts trading on the OTC markets.
    • Avoid stocks that are consistently plagued with bad news/rumors.
    • Avoid investing in a company that has no future.
    • Avoid stocks with very high short ratio.

    This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

August 28, 2011 | In: Financial

AIB Delisted from the NYSE

I though there was going to be another reverse split, but I was wrong. AIB (Allied Irish Banks) elected to delist itself from the NYSE after reaching an all time low of $0.68/share (or $0.136 before taking the reverse split of 1:5 back in February into consideration).

AIB has been trading in the NYSE since January of 1991 where it started trading at $29, and has reached an all time high of $313 (both numbers are when taking the reverse split into consideration) back in February of 2007. The stock then started collapsing because of the Irish debts problem. AIB was bailed out by the Irish government last year (the Irish government technically bought AIB). The stock fell below the necessary $1 level for the first time in December of 2010, which means that back then it was below the minimum price level to maintain listing at the NYSE. AIB elected to do a reverse split in February of 2011. In August of 2011, the stock started trading below the $1 level again for 3 weeks, until AIB decided to pull the plug and get out of the US stock market.

I hate to see these things happen, but in this industry, there is no such thing as mercy. Investors decided to kill AIB and they did, driving its market cap from about $400 billion to less than a billion in just 4 years and a half.

Finally, take a look at AIB’s chart on Google finance, as probably you won’t have the chance to see it again on Google:

AIB’s price is shown at zero dollars on Google finance. I would like to buy 1.23 billion shares of AIB, at zero dollars!

I can only say farewell, and for many investors, AIB was a joyful ride most of the times. You will be missed by many investors. I do wonder though what happens to one’s shares when a stock gets delisted. I guess it’s the topic of yet another article on fadi.el-eter.com!

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

1 million dollars is the magic number for everything. I used to dream about this amount when I was a kid. I used to think that 1 million dollars will buy me anything I want. That was then, and this is now. A million dollars nowadays can barely buy you the house that used to cost $100,000 20 years ago, even with the current deflation in home prices. At best, a million dollars can generate 2 or 3% in low risk countries as interest, which is $20,000 to $30,000 a year, which is not enough to feed anyone. However, a million dollars is still a million dollars, and most people living on this planet don’t have this amount yet. But if you have it, what can you do with it?

Here are some ways to invest your million dollars:

  1. Buy stocks long term: With a historical average return of 10% on the S&P, you can make a $100,000 a year on your million dollars. However, it’s very important to keep an eye on your portfolio at all times, and time your entry into the market.
  2. Day Trade: Day trading can make you a lot of money, but can also result in a lot of needless stress.
  3. Play with oil: I think this would easily be my favorite game if I have a million dollars. Oil is much safer than Gold, and its trends are predictable. Oil goes up, and then goes down, with a long term trend of going up (because of the increase of demand in oil and the inflation). Had it not been for the financial crisis, I think the world was able to cope with $140 oil. If you’re a Canadian trader, or you’re playing in the Canadian markets, then you can play with HOU and HOD.
  4. Play with gold: Most investors think that gold will go up forever, I don’t. I think that gold is a bubble that is going to burst. Obviously, so far I am wrong when it comes to my opinion about gold (I wish I bought when it was at $800). In any case, if you believe the hype about gold, then go ahead, buy some.
  5. Buy real estate: Real estate in the US is relatively at an all time low after taking inflation into consideration. You can buy real estate (especially land, which always keeps its value and which value can increase substantially with time) and then wait a few years until the price increases. You can also generate residual income by renting your real estate (enough to make you the money you need to live large). Just make sure you don’t buy real estate in highly taxed areas.
  6. Create your own business: There’s nothing better in this world than having your own business. Most people don’t start their own businesses because they just don’t have enough money to be independent, but you do! Start your own technology company, start your own service company, just start something! You need to make sure though that your business plan is feasible and realistic, and that you won’t spend your million dollars by just paying for expenses without generating any income to cover these expenses on the medium term.

I think the best idea to apply all the above, step by step, so the excess of money you would generate from stocks, you buy real estate, and the money you generate from real estate, you fund your new business, and from the money you generate from your new business, you fund your new other business. This way you will diversify your investments and you will know the real meaning of Money makes money.

August 24, 2011 | In: General

Is the Swiss Franc Overvalued?

In these crazy, crazy days, where many investors are thinking that the world is finally coming to an end, and where a lot of forex traders are thinking that the USD (and soon the EURO) is worth a bit more than the paper it’s being printed on, we are witnessing massive exodus to the so called safe haven currencies.

These safe have currencies are: The Canadian Dollar, the Japanese Yen, and the Swiss Franc. Investors that think that the previous 3 currencies are safe haven currencies, should think again, because most likely they’re following the masses who are apparently ignoring that the whole world is interconnected, and that these currencies are still, paper currencies.

Let me talk about the Canadian Dollar and the Japanese Yen before discussing the Swiss Franc…

The Canadian Dollar is currently priced based on the price of commodities, especially Gold and Oil, that are abundant in Canada. However, we know that the Canadian Dollar should be priced based on the strength of the Canadian economy, which is mostly tied to the under-performing US economy. Is the loonie overvalued? I think it is, but not by much. I’d say the loonie is overvalued by a maximum of 15% – 20%.

The Japanese Yen is tied to the Japanese economy, which is also strongly tied (but not as much as the Canadian economy) to the US economy. The Japanese Yen should be priced upon the strength and the continuity and the expansion of the Japanese economy, and not by investor speculation (as it is today). I think the real value of the Japanese Yen is much lower than it is priced at at them moment, and here’s a day-to-day example why… Toyota, for example, knows that the cost of each Toyota Highlander car is JPY 300,000. When the yen was trading at a 100 (in other words, each JPY 100 = $ 1), that amount was $30,000. The car was sold for $40,000 in the US for a profit of $10,000/car. Today, the JPY 300,000 are $39,473 (at the current price of 76), which means that Toyota’s profit is only about $500 for that car. GM and Ford, on the other hand, can still sell their equivalent models for $40,000 at a huge profit. Every company in Japan has the same problem when it comes to exports to the US and the rest of the world. Is the Japanese Yen fairly priced? I think not. I think it’s overpriced by at least 25%, and we should see a retreat either end of this year or next year.

Now let’s discuss the Swiss Franc, the powerful Swiss Franc and all the misconceptions about it, by asking and answering the following questions:

- Is the Swiss Franc backed by gold? The Swiss Franc was 40% backed by gold until the Swiss government sold all the gold back in 2005 following a referendum held 5 years earlier (in 2000) to drop the gold backing of the Swiss Franc. There is a huge misconception that the Swiss Franc is still backed by gold!

- Is the Swiss economy indifferent to the US and the European economies? Of course (add sarcasm here), it is indifferent. Switzerland is an island nation, bordered by an ocean from all sides. It has nothing to do with Europe or the US economies, it’s not that the majority of bank accounts in Switzerland are held by Americans or Europeans. It’s not that the Swiss banks have very strong ties to European and American banks. Apparently nobody is able to see this.

- Is the Swiss economy shielded from the European crisis? No it’s not, at all, in fact, it is heavily involved. All major Swiss banks and businesses have financial interests/investments in Europe, and all of them are affected by what’s happening there.

- Is the Swiss economy powered by things other than the financial services? Yes (again more sarcasm), Switzerland exports good quality chocolate (like the ones you buy at the airport for your significant other), beautiful watches, and, of course, Swiss knives. All three industries generate trillions of dollars (ok, enough sarcasm) to the Swiss economy.

- What is the real value of the Swiss Franc? Certainly not 0.78 for the USD. Of all the 3 currencies I mentioned in this article the Swiss Franc is the most overvalued one, at least by 30%, which means that the real value of the Swiss Franc should be 1.11.

This article (as well as all other articles on this website) is an intellectual property and copyright of Fadi El-Eter and can only appear on fadi.el-eter.com.

I just received an email stating that my LinkedIn Account has been blocked, apparently due to suspicious activity such as too many failed login attempts. Thankfully, because I investigate all the links before clicking on them, I noticed that the link does not go LinkedIn, but to another website, where you will probably be greeted with something that will render your PC unusable (don’t click on that link).

I think email is becoming more and more unreliable, I’m receiving scam emails everyday claiming that they are being sent from legitimate companies (Google, Facebook, LinkedIn). There are two solutions to this problem:

  • Email servers everywhere should not accept emails claiming to be sent from one domain while they are being sent from another (this is actually a setting on the mail server, but sometimes legitimate emails fall through the cracks).
  • Create a global filter that all emails sent have to go through before reaching their final destination. That filter will check if the identity of the sender really matches the “Sender” information on the email. If it doesn’t, then the email is rejected. This is, however, the worst solution when it comes to privacy. Where will that global server be, who will monitor it, and who will have access to its logs?

In any case, I feel that the number of scammers is increasing exponentially over the last few months (I used to receive these emails every week, now it’s multiple times every day!). Apparently, governments (especially the US government) are no longer “tough” on them.

Now since this post is mainly about LinkedIn, how is LNKD doing? Apparently not very well, as the market has woken up since last month and has discovered that LinkedIn is way overvalued. Even at the current price of $78.62, LNKD is trading at a P/E of 1,121 – it’s only one thousand one hundred and twenty years before LinkedIn is able to pay back the investors at the current earnings, assuming, of course, in a thousand years from now, LinkedIn still exists, the Internet still exists, the stock market still exists, the world still exists, and stock traders are not all burning in hell!

In the past few months, I have read many articles on Google’s new innovation, Google plus. Apparently, with Google plus, you can connect with friends, share photos, stories, and other nonsense about yourself, that nobody cares about, except you, your wife (if you have one), and your mother (if she uses a PC). Sharing photos and stories about yourself? Now where have I heard this before? Isn’t this similar to Facebook? In fact, isn’t this just a Facebook clone?

It actually is. Apparently, Google is determined to create a competition for Facebook no matter what, and they think that by offering “Angry Birds” and other useless games on their platform they will undermine Facebook’s efforts to rule the Internet and become the world’s most visited website. Not only that, someone at Google (Larry Page, maybe?) seriously thinks that Google Plus is a decent competition to Facebook (or maybe is a Facebook replacement). Apparently, no one at Google wants to face the harsh truth: Google lost the battle of Social Networks, and Facebook is here to stay (well, unless Google buys it for something like a $100 billion dollars – the same ransom amount that the world had to pay Dr. Evil to stop him from taking over – or destroying – the world).

Now I haven’t used Google Plus before (and neither did any of my friends, well some of my not very close friends have used it, but only for experimentation), and I don’t expect to ever use it. The thing is Google claims to currently have 30 million users (or even more). Well, guess what, these are the gmail users, or the users with a Google account. I have taken a look at Google Plus myself (went to the homepage), and I didn’t know what Google wanted, or what is this at first glance, and I consider myself to have a decent technical background. Well, apparently I don’t!

Here’s how I think Google Plus has already failed:

- Google Plus seems to have been developed by a very young geek. It doesn’t look professional, and yet it’s very complicated.
- The only chance that for Google Plus to survive is to steal Facebook users, for good, and I don’t see this happening, at least in the next 5 years (I suspect Google will drop this stupid idea in a year from now)
- Google Plus is hailed by many solid Internet resources, the same ones that hailed Google wave and Google Buzz (both are now dead projects – the former was supposedly created to compete with Facebook and the latter with Twitter).
- A solid evidence proving that Google Plus has failed is by looking at the social activity of any post, for example, this is the social activity of an article on Bloomberg:

Figure 1: Facebook vs. Google Plus – Notice that the article was recommended/liked (both recommend and like are the same thing) 157 times, while it was only plus1′d 6 times. This says a lot about the activity of Google’s network.

- Although Google is trying very hard to promote it by adding the +1 (an identical clone of Facebook’s like feature) next to each search result (or even advertisement), I suspect that all these +1s will only attract spammers, rather than real people.

I think the best thing to lure people into using Google Plus is to pay them money to migrate from Facebook (and maybe pay them extra for every friend they convince into migrating to Google plus). And even then, they will take the money and just go back to using Facebook.

I wish that Google can listen to all its investors: “stick to enhancing your search algorithm, do something innovative in the search area, and stop obsessing with Facebook and cloning other websites, it didn’t work before, it won’t work now, and it won’t work in the future”.

Not an easy question to answer. Unless you go through every stock and check how many historic splits that stock had so far, then there is no way you can know which stock has the most reverse splits.

I first thought that the stock which has the most reverse splits was INTC. This is because when I was a kid my uncle told me (and I still remember this, no idea why) that Intel used to split its stock in half every year. That was back in the 90s. So, I first checked Intel, and while the split used to happen every other year (and not every year as my uncle said), Intel had an impressive history of splitting its stock. It split it one time in the ’87, after that the stock dropped to a few pennies (that’s why there was a huge volume on the stock in 1988). Intel then recovered in the 90s and split its stock again in ’93, and then in ’95, ’97, and a final split was done in 2000, before the big NASDAQ crash. In total, INTC experienced 6 splits, all of them were 2:1 splits, with the exception of the one done in ’87, which was a 3:2 split.

But, to my surprise, INTC was not the stock with the most splits, there was one that had even more. After heavy research, I discovered that the stock that has the most splits is AFL (AFLAC Incorporated). In total, AFL (by the way, AFL is currently at a very attractive price – it is trading at a yearly low, I suggest you check it) has had 7 splits so far: 3 in the 80s (3 years in a row), 3 in the 90s, and 1 in 2001. Here are the details:

- 1985: 3:2
- 1986: 4:3
- 1987: 2:1
- 1993: 5:4
- 1996: 3:2
- 1998: 2:1
- 2001: 2:1

Just for fun, let’s see if you owned 2 INTC shares and 2 AFL shares in 1984 how many shares you would have had today:

INTC: 2 x 3/2 x 2/1 x 2/1 x 2/1 x 2/1 x 2/1 = 96 (2 INTC shares in 1984 equal to 96 INTC shares today)
AFL: 2 x 3/2 x 4/3 x 2/1 x 5/4 x 3/2 x 2/1 x 2/1 = 60 (2 AFL shares in 1984 equal to 60 AFL shares today)

So, while AFL had more splits than INTC, Intel gave its investors more shares for their 2 shares than AFLAC. I wish that Intel will return to its might once again. I don’t know why its stock is not performing well these days, most PCs are powered by their technologies.

I think it’s save to say that this article falls into the trivia category, it’s not essential information for investors to know, but it’s good to know!

Investors shouldn’t care less about stocks splits, because they won’t affect them at all, with the exception when they want to buy the stocks (if they don’t have a flat commission then their fees will be higher as some banks charge a fee/1,000 shares for the basic plan, however, this can work work to their advantage if there is a reverse split). Additionally, splits (or reverse-splits) have zero effect on the options of the stock. All the relative parameters will be divided or multiplied based on the split.

For example, let’s look at GOOG (which still is the second most expensive stock as you can see here) for a moment… Google is now trading at $490, which is, again, quite expensive for many investors. Here’s what might happen: Someone at Google thinks, hey, let’s split the stock in 10, this way we’ll lure many small investors into buying the stock. Another one thinks, I think a better idea is to split the stock to 100, so we can lure even more investors… The board then decides to split the stock in 100 (which is a 100:1 split).

Here’s the information about GOOG before the split:

Stock price: $490.92
Average volume: 4.71 million shares
Market cap: $158.51 billion
EPS: $27.73
Shares: 322,890,000

Here’s what will happen to GOOG after the split (if it’s 100:1 meaning 1 share before the split will be equal to 100 shares after the split):

Stock price: $4.9092 (no rounding will happen, but the market will soon adjust to a round number to the second digit)
Average volume: 471 million shares (the average volume will be multiplied by 100)
Market cap: $158.51 billion (not affected)
EPS: $27.73 (not affected)
Shares: 32,289,000,000 (the number of shares will be multiplied by 100)

Now that I have explained what happens to the stock when there is a split, let me answer the question in the title: When is a stock split most likely to occur?

There are four cases in which a stock split is most likely to happen:

- The stock is very expensive and the company board wants to lure small investors.
- The company is doing very well and has a plan to regularly split its stock in good times (that was the case of Intel back in the 90s when they were used to split their stock in half every other year) to maintain its price level.
- The stock has dropped below the $1 level, which is below the minimum amount to remain listed in the NYSE and the NASDAQ. This is when a reverse split happens.
- The company discovers that it has issued more stocks than it should in its IPO. I think Sirius falls into this category. In this case it will be a reverse split.

Finally, remember this: “A split usually means that the company is in good shape (again, take a look at Intel in the 90s), a reverse split means that the company is in a terrible shape. If you don’t believe me, take a look at AIB and C.”