AIG stock: Share price up, value down. Huh?

By
USA Today
July 21, 2009, 10:38 AM ET
3 min read

— -- Q: How can my AIG stock aig go from less than $2 a share to nearly $15 a share, and I still didn't make any money? Is this possible?

A: It's strange, but true. You've lost money on AIG even though the share price has risen.

The reason? The troubled insurance company performed a 20-for-1 reverse stock split after the market closed June 30.

In a reverse stock split, a company artificially and legally pushes up its stock price up by reducing the number of shares outstanding. The end result: While the per-share price of the stock goes up 20 times, the number of shares you own falls by 20 times. AIG put out details here on its reverse stock split.

I've found people often have the easiest time understanding this by backing out the split. I'll help you do that.

The first step is to go to the last trading day before the reverse split, which was June 30. That day, the stock closed at $1.16 a share. After the close, the post-split, per-share price became $23.20, or $1.16 times 20, as the value of every 20 shares you owned was folded into one share.

Now, fast forward to July 14. The closing price that day was $14.32. But, again, we account for the split, this time by dividing by 20, to get 71.6 cents.

So, you can see, if you strip out the split, your stock fell from the $1.16 a share to 71.6 cents for a loss of 38%. So yes, you've lost money.

USA TODAY's historical stock price lookup feature makes this easy. If you go to AIG's stock quote page by putting the ticker symbol in a Get a Quote box, you can see AIG's stock price before and after the split. Just click on the Historical Quotes tab and put the date in the box.

You can read more here about reverse stock splits and here.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns. Follow Matt on Twitter at: twitter.com/mattkrantz