Stock Splits

[cthulu2016]

When a stock splits it is sometimes reported as news.

This is much like the way black friday sales are sometimes reported as news.

Neither one is news, but they both constitute a sort of feel-good corporate fake news that people seem to enjoy.

If a stock worth $400/share splits, each share of stock becomes two shares of stock, each worth.... drum-roll... $200.

Nothing. Changes. The percentage of the company represented by all its stock remains the same. If you owned 5% of the company, after the stock splits you have twice as many game-pieces but you still own 5% of the company. It's the same value.

It is much like the Yogi Berra line when a pizzeria asked if he wanted them to cut the pie into four pieces or six pieces, said, "Four. I don't think I'm hungry enough to eat six pieces."

So why do stocks split? Stocks are usually traded in blocks of 100 shares, and you want that standard minimum trade to remain a manageable amount of money. Helps keep the stock liquid.

On the other hand, Warren Buffet's company Berkshire-Hathaway intentionally did not split as a prestige thing. They wanted a guady, intimidating price. I have no idea what BH sells for today, but IIRC it used to be like a hundred thousand dollars a share or more.

Anyway, when Apple's stock splits, nobody is getting something for nothing. And if the market capitalization of Apple goes up as a result of the split it is due to psychology, and nothing more.

[Brother Buzz]

1. You better cut the pizza in four pieces because I'm not hungry enough to eat six. - Yogi Berra

[cthulu2016]

3. Fair enough.

(Changed OP to jibe with that rendition.)

[Brother Buzz]

10. Interesting, Berkshire Hathaway Class A stocks have never split

Warren Buffett bought in at just under twelve dollars a share, today it closed at 190,800.00

[Electric Monk]

2. Out of curiousity, I just googled it and Berkshire-Hathaway is trading at $190,800.00/share

http://www.google.com/finance?cid=4376

I had no idea. It's good to learn something new everyday.

[cthulu2016]

4. Wow... they really don't want just anybody showing up at shareholder's meetings!

[Loudly]

7. I remember looking at it back in the 1970s

and I said to myself who the heck is crazy enough to pay six hundred dollars for this stock??

[thecrow]

11. It's up over 73,200% since 1980

Who knew?

[RB TexLa]

5. It is news in that a company is not going to do a stock split unless they feel the price will

continue a sustained increase.

[Hoyt]

6. While I agree with the valuation at the time of the split, it often works to increase share price

over time. Markets aren't always rational.

[cthulu2016]

9. Yes, for psychological and liquidity reasons it does typically increase market cap, despite

the fact that it does not make the company any more valuable.

I agree that markets are often not rational. They are, however, excellent at pricing. After all, what else could possibly price in aggregate irrational impulses?

[Liberal In Texas]

8. Stock splits are sometimes just psychological.

Oooh, our company is doing good, so the 400 to 200 seems just the same, but now the psychology of the market being what it is, the stock price rises making it more than 200.

I think that's what's behind it a lot of the time. Of course sometimes it fails. And the stock goes down. Such is the market, just a different form of gambling.