— -- A: Proponents of penny stocks often try to convince investors to take a chance by spreading false success stories. One of the most popular has to do with Microsoft starting as a penny stock. It's not true, but I'll show you how the fraudsters try to trick you.
Here's the truth: Microsoft's stock debuted on the Nasdaq market on March 13, 1986. Its price at the end of that first day was $28. Microsoft's stock price, as quoted in newspapers and now the Internet, has never fallen below $1 a share. In fact, the stock's lowest quoted price in its history was $21.51 on June 13, 2006. You can see for yourself using this stock price spreadsheet from Microsoft, available here:
Check out the second column, called "Pre-Split Closing Stock Price." This number shows you the stock's price, as quoted by a broker or in the newspaper.
But, wait a second! What about the first column, called "Post-Split Closing Stock Price?" It shows Microsoft having a stock price of just under 10 cents a share on March 13, 1986. Does that mean the penny stock hucksters are right?
Not at all. That first column tells you what the stock price would have been in 1986 if you had considered the effect of all the company's later stock splits.
At no point did Microsoft's stock actually trade for 10 cents a share. It debuted at $28 a share. The 10-cent price is merely a reflection of the company's nine stock splits, which mathematically affects past stock prices in relation to current stock prices.
Don't be fooled.
Matt Krantz is a financial markets reporter at USA TODAY. 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.
