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Blog : Microsoft was Never a Penny Stock
March 12th, 2009
Microsoft was never a penny stock. You've almost certainly heard otherwise, but it is one of the most common investment "misunderstandings." Microsoft went public in 1986 at $21.00, started increasing in price, and never looked back.
I've even heard people socializing at various events, speaking that phrase like a juicy rumor - "You know, Microsoft used to be a penny stock. We should look into this ABC corporation, because they're gonna be the next Microsoft!"
Here's where the confusion comes in. Looking at a long term trading chart of Microsoft, which includes data going back to it's IPO on March 13, 1986, it looks like the stock started trading at a couple of cents, then got to much higher levels where it trades today. What most people don't realize, is that's just the chart adjusting the original prices for the impact of numerous stock splits.
Here's what I mean: If Microsoft is trading today at $30.00, that's what the long term chart will show. However, if the stock split 2 for 1 (2 new shares for each 1 old share), it might then be trading near $15.00. The chart will reflect the $15 price. However, all prices on that chart previous to the split will be cut in half. If it looked like Microsoft had started trading at 4 cents on it's IPO date, now that chart will show that it started trading at 2 cents.
Each of Microsoft's share splits over the years (and there were many of them) further compress the historical data down, so that the chart can accurately show today's current share price.
Picture a stock that started trading at $10 per share. A year later it has a 10 for 1 stock split. A trading chart will then show that stock started trading at $1, to adjust for the split factor.
Next time you hear someone talking about how Microsoft used to be a penny stock, you can debunk them. It's a rampant investment rumor, but now you know the truth.