“I’ve been getting a few excited emails about the possibility of a stock split at Apple,” Cody Willard writes for TheStreet,com RealMoney. “I have two words for you: ‘Who cares?!’ So what if Apple doubles the numbers of shares outstanding and halves the stock price? What good does that do anybody except the bankers, accountants and lawyers who get paid fat fees for pretending to do the hard math involved and making sure the right papers get filed at the right agencies?
Willard writes, “Stock splits might have made some sense back in the early 1900s when the value of a dollar was 90% less than it is today, which would have made a $200 stock equivalent to several-thousand-dollar stock. And back then a higher share count might actually have impacted the ability to trade a stock. But why on God’s green Earth should Apple split? Does the stock seem illiquid to you? NO! Does a $100-per-share price keep small investors out? NO!”
Full article (paid subscription required) here.
The basic rationale for splitting is that it makes individual shares more affordable and therefore attracts more investors. For a shareholder today, 2-for-1 split simply means that for every $99 share they own pre-split, they would have two $49.500 shares post-split; a 3-for-1 split would result in three $33 shares. There is no monetary loss or gain in a stock split. In our opinion, a share price around $100 actually does keep small investors out of the game. In Apple Inc.’s case, how do you think a 2-for-1, or even 3-for-1, split would impact shareholders and/or affect volatility (which is one thing Apple sure doesn’t lack historically)?
Apple stock split history:
(Date Declared – Record or Split Date – Payable Date (date NASDAQ trading began on split-adjusted basis): Type)
Feb. 11, 2005 – Feb. 18, 2005 – Feb. 28, 2005: 2-for-1 Stock Split
Apr. 19, 2000 – May. 19, 2000 – Jun. 20, 2000: 2-for-1 Stock Split
Apr. 22, 1987 – May. 15, 1987 – Jun. 15, 1987: 2-for-1 Stock Split
source: Apple Inc.
I bought 2000 shares at $12 a few years ago and hung on to it. That’s right. Steve just paid for my new car.
MDN’s take is ludicrous and uninformed. No “investor” is kept out of any stock because its price is $100, let alone a stock like AAPL, of which 77.4% is held by institutions.
The affordability explanation is broken, because the price range in which companies tend to target by splits has not changed over the past 80 years. If affordability were the explanation for the splits, then that range should have increased with inflation.
There has been some good research about this issue at Cornell, if anybody is interested. I think the bottom line is that many companies like to split in order to keep their stock price in the $30-50 range, precisely because other companies are doing it.
The other thing that a stock split does is that it portrays success. We are so successful that our stock went way up and we had to split to keep the price down. That may pull in a small investor, but the biggies don’t really care. And along the same lines, corporations don’t care about the small investor with a few shares, or even a few thousand. It’s the big guys that they cater to.
Most people that can’t afford a $100 stock probably don’t have any investment money anyway. Less than a hundred bucks to invest?
Booyah!!!
It’s kind of a psychological thing.
More for your money perception.
I never consider buying google stock. Come to think of it, maybe I should.
MDN:
You’re absolutely correct mathematically.
Investers, however, like people everywhere are influenced by emotion, that is, anti-logic, and perceive lower numerically priced stocks as “cheap” and more likely to go up and higher priced stocks as “expensive” and more likely to go down, all else equal.
Obviously any kind of rigorous analysis would debunk this in a few seconds, but who does rigorous analysis? Emotion has an effect….
The other argument is that a split is a “sign” of big things coming in the stock from Management – its going to go up a ton, so the company is getting ready for it by giving the stock “room” – a lower number. Again, all hype/perception/emotion/B.S. – high price stocks can go higher, as Berkshire Hathaway proves (Berkshire never splits their stock, and its shares are in the 5 figures – clearly hard to buy (altho they now sell part shares)).
Warren Buffet (the Berkshire dude) dislikes the manipulation and (arguable) dishonesty inherent in splits so he doesn’t do them – Buffet seems like a high integrity dude. Which makes his alliance with Gates all the more bizare, but I digress.
To prove the benefit of stock splits on the stock, and the inherent emotional aspect of the stock market, check historical graphs of stocks after splits have been announced. On average, they go up a bunch when the split is announced, and again when the split actually happens.
So what kind of car are you getting, pr?
I just bought .6895 shares of Apple yesterday. Yes, they are in my Sharebuilder portfolio. Yes you can buy partial shares.
Current price didn’t keep me from buying did it?
/owns more than just a part of one share
// is really really happy about the stock price lately
I wish I had double the number of shares I have..
“Most people that can’t afford a $100 stock probably don’t have any investment money anyway”
A lot of people invest $1,000 or so at a time. I can guarantee that having the stock at $100 instead of $50 keeps a lot of these buyers out. Are they worth the trouble? Possibly not. But saying that isn’t true makes you look like an idiot.
I agree with what Steev says. This is a psycological move. What it does is allow mom and pop investors to get in. To the money managers and more seasoned investors, it really makes no difference.
Will it affect the stock performance. You bet. After splits stocks tend to go up faster. Nothing to do with real value, just paycological.
I’m not a savvy investor…I don’t have a ton of money, but some…I’ve bought a bunch of AAPL…but haven’t bought Google because psychologically $500 for 1 share is a mental hurdle.
call me an idiot…but I bet others think the same way.
First, we need full disclosure about Steve’s plan to get out of the computer business. Even before a single phone is sold, he seems to be sure he can bank the whole company on its success.
His interviews after the Keynote clearly reveal his certainty, boundless confidence, and usual arrogance that he has invented a device that will change the world. All we stockholders want is for him to change is our bank balances by making them bigger.
What if he is wrong and, after some immediate exuberance this summer, the thing becomes just another cell phone with more fetching graphics.
Will it be TOO LATE to resume building personal computers and some Leopard offspring? Or, will Dell, Msoft, and the likes have taken advantage of the distraction at Apple, Inc., and further reduced the tiny Mac market share, maybe forever.
Second, we need to know if Steve is going to continue to occupy his oppulent Cupertino office or some state or federal housing.
Who cares about a stock split? Maybe everyone that bought in after the last one?
He’s right, Apple should never have done the last three splits. Investors would be perfectly happy with $720 shares.
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You guys crack me up.. $100 a share or $1000 a share. No one is “left out”….
Learn just a little bit about investing. BUY ON MARGIN just like any serious investor does..
This is Investing 101
People look at splits incorrectly and the original author obviously doesn’t know crap about the stock market. A split is a GOOD thing.
Example 1) If I have $100 to invest and Apple is $100 I can buy 1 share. If it goes up I can’t get any profit out without selling my entire position. Not splitting hurts me as an investor.
Example 2) If I have $100 to invest and Apple splits and is now $50 I can now buy 2 shares. If it goes back to $100 I can sell one of my shares and pocket $50 profit while still owning $100 worth of Apple stock, my original investment. Splitting allowed be to get more shares.
Example 3) If the stock is worth $100 and you have 1 share and the stock splits you now have 2 shares at $50. If the stock goes up $1 you now gain $2 for that dollar move instead of $1. The more shares you have, the less the stock has to move for you to make a profit. If I own 1 share of a stock that goes up $1 and you own 10 shares of the same stock, I only made $1 and you made $10. By splitting it cuts in half the amount the stock has to move to create the same amount of gain.
Splitting the stock gives a) better opportunity to get into the stock and b) better opportunity for existing owners to take profit while retaining a high number of shares.
Split the damn thing!
@ Sum Jung Gal
Your unbridled arrogance in the above posting is matched only by your lack of understanding of the small investor. Perhaps your only focus in financial matters is on institutional transactions, but your disdain for the (supposed) 23& of private AAPL shareholders is offensive and wrongheaded at best.
Many brokerage houses (certainly not all) require minimum orders of 100 shares of a given equity, and at $95 per share, $9500 represents a significant lump sum investment for individual players. $4750, on the other hand, or even $3167 (with a 3 for 1 split) is much, much more “do-able,” thereby bringing more buyers to the stock and more widespread diversity in its ownership.
Microsoft and Dell keep their share prices in the $30 range for this very reason: to broaden the holding base so that a single (or couple of) institutional dumping cycles don’t drive their stock into the toilet.
Putting it kindly, it is YOUR position in this matter that is ludicrous, SJG, for a great many investors ARE kept out of equities because of their lot buy-in prices. Tell us, how many shares of Google have YOU purchased lately?
MDN, please spare visitors your investing posts, explanations and guidance. You clearly are not qualified to do so. Anyone who thinks that they are better off investing in a company with “cheaper” shares should not be investing in the stock market – period.
Proof of the unimportance of splits is Warren Buffet and his company, Berkshire Hathaway. Buffet is hands down the most legendary investor in American history. Dozens of books have been written about him and his investing philosophies. To date, Berkshire Hathaway stock has never split and today, one class A share sells for $110,000. In 1984, the same share sold for $1,300.
Yes, I know there are class B shares. But using the “cheaper stock” logic, they are a steal at $3600/share.
To compare Berkshire Hathaway to Apple isn’t fair. Berkshire Hathaway is essentially an ETF, without actually being an ETF. Buffett hasn’t split because he doesn’t need to. He purchases companies, not just stocks and he’s not really selling products to the public as Berkshire. There’s a huge difference here.
How many people do you know that own even a single share of Berk Hath? Not many. Out of all of the people I know, probably 5 could afford a single A share. Buffett is my hero and the reason I trade stock for a living, but you can’t base anything in the real world to him. He is the major exception to the rule. That’s like saying all Basketball players should be Michael Jordan. It doesn’t work that way.
Apple is a business, it does them no good to run their stock up to $110,000 a share. Apple would be helping it’s share holders by splitting. I’d rather have 500 shares of a $10 stock than 1 share of a $5000 stock. Yes, they are equal monetarily, but I only need the $10 stock to go up $1 to make $500, whereas the $5000 stock needs to go up $500 for my one share to make $500 and, as I said before, with my 1 share I have no room to take out profits without completely eliminating my position in the stock.
You can’t always look at stocks as a math problem. Two positions that are equal cash-wise aren’t equal at all when it comes to manipulating your profit or loss.
– Undertrader
Midlothian is absolutely correct. I can buy shares in any quantity in my self-directed RSP (Think 401K for Canadians) but I may be subject to additional fees for odd lots, ie. not increments of 100 shares. Certainly a lower price affords more flexibility with limited funds to increase and decrease my position in Apple.
Luckily I have room to do this with Apple, but purchasing 100 shares of Google right is not possible. That doesn’t mean I don’t believe Google is not worth investing in, but the share price prevents it if I am to minimise my fees.
HEY pr,
if u went w/stock options instead… u wudv made 6 figures…
I hate the shallow knee-jerk analysis that says “10 shares at $100 is the same as 100 shares at $10”. Yes, they’re worth the same amount ($1000) overall, but the key value in a stock split is that it increases stock price volatility, and if the stock price is going up, that’s a good thing for all shareholders.
With the way open market trading goes, and especially considering the actions of day-traders, a $100 stock isn’t likely to jump to $120 in a day, but a $10 stock could easily jump to $12. Both represent a 20% increase in price, but in the minds of traders, they’re not the same thing.
I have several hundred shares of AAPL.
I absolutely want a stock split and I absolutely know more investors will buy two shares at $50 than just one at $100.
It’s ALL about perception!!
A couple of posters are correct…it is psychological, but the big thing for shareholders is the psychological barrier, ceiling if you will, that allows stock prices to rise easily when under $100, but has been reluctant to allow much increase above that. It may not be justified by P/E ratios or other measures of value, but who ever said that the stock market was governed by sound, rational thought?