Good morning everyone.
That’s exactly what I thought last night (Anita V) when I started this thread. How ironic (the timing of this)!!! I also (for you) just checked that link that I posted. Very odd!!! This morning: the same thing for me i.e. I could only read the introduction but in order to view the entire article I was being asked to subscribe and I SWEAR to you I was able, last night, to read the entire article (I don’t subscribe to the WSJ). But I’ll try and find another article for you on the subject as there ware some great detail there (I DO subscribe to the New York Times so I’m sure there must the a similar article there). Anyway: I’ll find one and post.
Buckscoder and PipBandit:
The reason CitiGroup has always been of such significance to me is because it was but ONE of the financial stocks that I kept ‘buying on the dips’ on the way down at the start of the sub-prime crisis. I bought somewhere around 50$, goodness knows how many times I added to the position, and was margin called when it got to around $5 or somewhere around there (a major contributing factor to my ‘spectacular wipeout’). So I keep CitiGroup on my price quotes just to REMIND me to NEVER make the same mistakes again. That type of thing. There is another reason and that is the fact that it’s one of the most heavily traded stocks (volume) on the NYSE. I wonder if that’s going to change now???
If I’m not mistaken: CitiGroup was a Dow component (or was it only an S&P 500 component)??? I forget now. I seem to remember there being much debate as to whether or not it was removed because it’s price was under $10 (which, if I remember correctly, is the ‘bottom line limit price’ i.e. anything under $10 is considered a penny stock and therefore cannot be included in the indices but CitiGroup, for a time anyway, was allowed to be an exception if memory serves me correctly).
(I’m rambling. Sorry).
Here’s what I’d like to know:
COULD this happen or be done with ANY stock even if it’s NOT a penny stock and is a Dow or S&P 500 component and, if so, would this not (falsely???) have an effect on the price of the index???
Also: I wonder if this means that CitiGroup will be added back to one of the indices (and of course somebody else then has to be removed).
And as I said: you never stop learning in this business. This is something that I didn’t know was possible. If you think about it LOGICALLY: the share price of any company is supposed to be indicative of, or reflect, the ‘fair value’ of such company. So if you were a NEW investor LAST week and decided to buy CitiGroup and you were a NEW investor this week MONDAY you’d be seeing two totally different pictures while nothing REALLY has changed??? Would that be a fair assumption to make???
There’s something else here that’s confusing (or worrying). How would the brokers have handled this??? I mean let’s just SAY that you were ‘loaded up’ on CitiGroup at $5 and that required X amount of margin. LOGICALLY speaking: the amount of margin required would have instantly been increased ten fold and if you were ‘flying close to the wire’ (like I used to trade???) not only could this result in a margin call BUT all of the sudden the tick value would ALSO have increased not so??? So how can this ‘just be allowed to happen’ or authorised??? The only alternative would be to reduce the position size by ten fold???
Also and in light of the above: could this also not be a reason for an initial selloff i.e. some traders or investors would be FORCED to liquidate their long positions because of the increased margin requirement.
I mean: it’s the same as me selling a car to somebody for $10 000 today, completing the transaction amicably, and going back to the buyer two years later and asking them for another $90 000 (to total $100 000)??? Come think of it: ‘asking’ isn’t the right word i.e. I would be ‘forcing’ the buyer to pay me another $90 000 or take SOME of the car back (reduce the position size)???
Your input would be greatly appreciated.
Don’t you just LOVE this business??? LOL!!! I do (quite possibly because I know there’s some new bit of knowledge or a new experience ‘coming my way’ from ‘just around the corner’ at any time)!!! LOL!!!
Regards,
Dale.
Edit (for Anita V):
‘You cannot keep a good man down’!!! LOL!!! For some obscure reason: when you follow a link from Google to the article you have full access but if you go DIRECTLY to the WSJ website you are only able to see the introduction. So I’ve converted the full article to an Adobe .PDF document and attached it to my first post (and edited the post accordingly).