Bring back the stock splits!

Discussion in 'Money and Business' started by motdean, Jan 27, 2020.

  1. motdean

    motdean

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    Yes and no. As mentioned in an earlier post, stock splits bring the price down to a level that could be attractive for the small investor.

    For example, when my son heard the news on Apple, he bought, knowing that his investment would quadruple in number of shares in a month.

    Yes, it can also go down, 4 times as fast, but it in my opinion it is typically the solid companies that achieve the stock momentum and gets further fueled by the ability of small investors buying in....ie further demand.

    I know that there is a contrary thought out there, but from what I have observed, holding both Nike and Apple, I feel that I have benefited.
     
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  2. kroppe

    kroppe

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    Thanks for the comments @motdean . I don’t see the economic value creation from a split. Total market cap in my view is driven by net present value of future earnings per share. Splitting shares doesn’t increase earnings and by this logic doesn’t increase market capitalization. What is your view of how companies are valued?
     

  3. 6667supersport

    6667supersport

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    I bought into apple due to earnings, the news of new phones coming out here soon and the coming stock split. I know the stock split actually does nothing value wise, but many seem to think that if they can only buy a few shares they can't make any money. I have heard it time and time again from people. I think that the stock will gain a few % in the week after the stock split due to new investors buying in, because its more affordable to them and others will think it is cheap at just over a $100.
     
  4. motdean

    motdean

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    I like the dialogue.
    I absolutely agree that stock splits do not increase market cap and offer value creation from a purely financial perspective.
    But I believe, more and more, that the stock market is an emotional being not completely driven by business or market fundamentals.

    Looking at where we are, economically, it is amazing that the stock market has rebounded as much and as quickly as it has, at least in my opinion.

    What would you attribute the 10% increase in Apple stock to?
    Why would companies split their stock if it did not create value?
     
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  5. kroppe

    kroppe

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    Stock price can increase in the short term when there is increased buying activity, or demand. Price goes up when demand goes up and new supply is not created, Econ 101. The increase in short term demand can come from large investors who move big piles of money around. Think of a whale swimming in a bathtub. I don’t follow Apple stock so I don’t have more than this to offer. If you own Apple stock I would suggest it is incumbent upon you to know what moves the price, it could be a wide variety of things.

    Stock splits attract various classes of investors. Small fish like low price, which I believe is consistent with your comments above. The numerical value of price in my view has no bearing on large or institutional investors which represent over 75% of the daily market volume. Small retail investors like those posting on this site are around 20% or less of daily volume, and have far less influence because of lack of coordinated actions. Small retail investors, according to some articles, have increased equity prices because of short term increase in demand since the pandemic started, pointing back to supply and demand.
     
  6. motdean

    motdean

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    Apple...
    Tesla...

    Is this the start of a new vogue?

    Who is next?
     
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  7. sureshot006

    sureshot006 Staff Member Mods

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    I'm only up 300% in apple but have held it for years.
     
  8. motdean

    motdean

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    Naw, c'mon man...you can do better than that. Who is next? ;)
     
  9. sureshot006

    sureshot006 Staff Member Mods

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    Yea i think DG is the same. But again I've had to hold it years to get it. There have been brighter stars.
     
  10. motdean

    motdean

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    No, I meant you can do better by telling us your prognostication as to who is next... ;)
     
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  11. sureshot006

    sureshot006 Staff Member Mods

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    Ha. I usually just pick conservatively and fall into it.
     
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  12. kroppe

    kroppe

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  13. Bob D

    Bob D

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    One single U.S. dollar holds the same value as four U.S. quarter dollar coins. There is no value added.
    However, thank you to all the new buyers that were psychologically moved to buy stocks. My all house money $AAPL holdings are now at a cost basis of $11.08. :woohoo1:
     
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  14. motdean

    motdean

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    I am not sure you can say that there is no value added.
    The value of a stock is based on what people will pay for it, just like real estate. ;)

    I think you will see more stock splits based on what we are seeing with AAPL and TSLA.
    I hope to be a holder of record of those stocks (NVDA perhaps??) before they announce....

    (I am not pumping NVDA as a buy as I think that their stock is extremely high right now.....but I am a current owner and would like to see them split based on the two recent cases noted above....)
     
  15. kroppe

    kroppe

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    The act of splitting a stock is not itself a value creating event. A lower share price, if that is the result of a particular split, may create emotional interest to buy the now more “affordable” stock.

    In a world with fixed short term supply of shares post split, price goes up, all things remaining equal. Market capitalization may go up.

    If company value is based on the net present value of future earnings, the notion I ascribe to, the increase in market cap from cheaper share price is speculative and subject to reversal. Hard to demonstrate this because more news that moves the stock surfaces every day, including actual earnings. This gets added to the market capitalization story, and dilutes any impact from the split, the farther time marches on past the split.
     
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