“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?
Because of the small investors’ mentality, a high price per share stock tends to keep small investors away. But that makes it harder for the hedge fund stock market manipulators from panicking the mostly ignorant small investors – the stampeding the cows. For some time now the hedgies have been trying to scare down AAPL so that they can get their institutional clients out of disastrous positions in DELL and get them into AAPL at favorable prices. Guess what they have been doing about DELL. They put lipstick on that pig and say, “buy, buy, buy,” while the same time that they say, “sell, sell, sell” about AAPL. They use puts and calls to dump their institutional clients’ DELL holdings and buy AAPL from the panicking cows.
People who say $100/share is fine and won’t keep small investors out have no understanding of what it is to be broke. Sometimes, even people struggling to eat, want to put a little (as little as possible) into some investment. A lower share price is more than simply psychological to them. Apple is in a price range now that really does discourage certain people from buying. Those who pooh-pooh this don’t get it and figure anyone knowing less than they do, and with less money, shouldn’t be in the market anyway. What’s the big deal? Split the stock. It won’t make the people with money and savvy unhappy. It will make others happier…and smaller investors are likely to buy more. Let them do it. Split the stock!
I bought shares at $49 so I’d love to see a split to double what I have now and buy more. $100 is cost prohibative for small investors in terms of volume. SPLIT, SPLIT, SPLIT! And if they do split it will bring in more investors who have become interested in Apple in recent years due to iPods and now iPhones.
Yes – investors et al are guilty of repeated ‘willful ignorance’
The market is irrational on good days.
(Disclaimer: I bought a pack of Apple at $18 – and I’m not selling yet…)
The only thing that will be getting ‘split’ are Steve’s cheeks by a fellow inmate for stock fraud:
http://www.informationweek.com/news/showArticle.jhtml?articleID=196900279
macromancer writes: “I just bought .6895 shares of Apple yesterday”
No you didn’t. Apple doesn’t issue fractional shares. You bought something that someone else said was a “partial share.” It’s not the real deal.
“Because of the small investors’ mentality, a high price per share stock tends to keep small investors away. But that makes it harder for the hedge fund stock market manipulators from panicking the mostly ignorant small investors – the stampeding the cows.”
This is bull.
Really small investors are more likely to buy and hold because they are largely ignorant of, and therefore don’t follow, the advice of analysts. Really small investors tend to be long-term buyers because they can’t afford to be buying and selling all the time. But prices near $100 shut out many small investors.
Not So Fast: Are you for real? Last time I checked, Dell Inc (formerly Dell Computer) was still making computers – in fact, that’s pretty much all they do (and not very well, at that). If anyone has the right to drop the “computer” from their name as they diversify, it’s Apple.
That was the basic rationale going way back when as listed in the beginning of the current stock markets – also keep in mind, if you account for inflation and the cost of living, a $100 stock ten years is different than today liquidity wise versus 50 years ago – the perception was that a cheaper stock allowed you the room to grow and trade volume would go up, your stock would be more liquid and more valued … plus the effect of the split gave the illusion that the stock was going great and it was now “on sale.” also keep in mind that prior to 10-15 year years ago, it was difficult other than major blue chip companies to borrow money at good rate and the best way was to issue more shares – unlike now where you have private investors who can invest millions or BILLIONS.
But in the last ten years or so, the whole stock split scenario was discovered to show no real benefit to the investor or to the company – and a lot of extra paperwork … also WArren Buffet proved with Hathaway Berkshire that if people believe your earnings and underlying assets are worthy, who cares if the stock is trading at $40,000 per share?
Or more recently – Google.
The premise is now – Google is the same at $500 or 5 shares at $100. If you want in, buy in – if you don;’t – whatever.
If anything, now, your high value stock price creates exclusivity … I doubt Apple will be splitting their shares anytime soon. See you at $200
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And no, Dell & MS are not artificially supressing their stock to keep it affordable – it is trading at the range that investors believe its value – just like when Dell was trading at $80 a few years back, they were not thinking – if we start missing missing sales targets, we can make our stock more affordable.
(and remember both comapnies have huge stockbuy back in the works – you only do that when you believe your shares are undervalued).
And volitility and volume craziness has no bounds – just like the $8 drop for RIM the day the iPhone was announced – still trading in the $130 dollar range so really that belief is meaningless. Just like the Google run-up from the $150 range to the $300 range and then the giant burst to $480+ … it’s all supply & demand.
Now, there are reasons for stock splits or stock issues if the company wants to get more shares out there to repurchase for options or other book-keeping issues but as an investment ploy, it’s been proven to have limiting value.
BTW, as for the options things – it is NOT illegal to create/grant retroactive options. It may not be wisest move a board can make but it is legal as long as it’s public and not hidden from shareholders.
It is illegal to fake a board meeting and it is illegal to grant it to yourself – neither things that Steve Jobs has said he’s done.
Now as CEO and AFTER S-Oxley passed, as CEO he is “responsible” and might have to face a fine or sanctions for knowing about it but not disapproving of it but if he presumed the “fake” board meeting was real, he certainly isn’t responsible for the fraud of another.
If this occured pre-S Oxley, he is pretty much in the clear legally – though ethically, he should apologize again.
Now, this is all based on Steve Jobs telling us the truth and on what he has said so far …
Also, BTW, the Berkshire Hathaway is comprised of a huge number of Consumer companies including Geico, Diary Queen, Coke, and Berkshire clothes … what you’re saying about consumer comapny must have a low stock price but one who doesn’t sell to consumers can have a high prioce stock makes no sense – Google gets very little revenue directly from consumers – way less than Berkshire Hathaway …
MDN take is rubbish!
Small investors do not invest only $45 or $100 etc. The fess in doing so would stop that.
This is basic simple minded thinking.
If you have $1000 to invest, and you want to invest in a company as you believe the company’s share price may rise by 20%, then it DOES NOT MATTER, whether you buy
1)1000 shares of a company with a share price of $1
OR
2) 1 share of a company with a share price of $1000.
In the end the results will be:
1) 1000 shares of a company with a share price of $1.20 (gain = 20%)
OR
2) 1 share of a company with a share price of $1200 (gain = 20%)
The only thing stopping small investors buying option #2 is that they are simple minded and believe that owning 1000 shares of something is in some way more valuable than owning 1 share of something!
Exactly as the author says way back when $100 was worth many many many multiples of a weeks earnings, then you’d split a $100 stock.
As a modern example, Berkshire Hathaway (BRK.A)shares, at $110,000 per share this share price would deter small investors, but maybe they could scrape up enough for a BRK.B share at $3670 a share? If these stocks split then the affordability argument comes into play for SMALL investors.
But again, if you bought just ONE BRK.A share at $6800 in Jan of 1990, you would now have a share worth $110,000. One BRK.B share at $1000 in June of 1996 would be worth $3670 now.
Bet you a lot of people bought 100, 200, 1000 or more of some stock that in total was worth $6800 in 1990, and I’m betting most don’t have returns as high as if they just bought 1 of BRK.A, but at least they have a LOT of shares to show for it!
my 2 cents
Luke
PS – sorry if this has been covered a million times, I read MDN’s take and had to comment.
You are kidding undertrader?
I can accept your argument about not having to sell your entire position if you only have one share, fair enough, but again we aren’t talking about a $1000 share price, we are talking about a $100 share price, so unless you are a MICRO (or should that be NANO) investor (i.e. only investing less than $100 in the market) then I’d say again the argument about selling entire positions is mute.
But then you get to dodgy maths 101.
“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”
As noted, 1 share arguments granted, the fact is the $1 increase on the $10 stock is 10%, and the $500 increase on the $5000 stock is 10%!
As share price increases are SUPPOSED to be linked expected future BUSINESS performance (usually based on recent performance (and the trend) as an indicator), then if the company is expected to be worth 10% more in the future, whether it is a $10 stock or a $5000 stock, 10% gain is the same, and the amounts are different PER SHARE, but not in total gain?!?!
Warren Buffet may be your hero, but the reason he is your hero is that he doesn’t use your logic to invest!
Cheers,
Luke
You’re right Luke, a 10% gain is a 10% gain, however I think you’d have a tough time finding a $5000 stock that consistently goes up $500 vs a $50 stock that goes up $5. It’s much easier to move a lower cost stock, with a few exceptions.
Seriously, looking at the market every single day and writing tons of articles about it, I can show you millions of times where a $20 stock gained $2 in a day, but probably a handful of times (minus Google and Berk Hath) that a $100 stock went up $10 in a day. Same amount of gain, mathematically you are correct, however the gains and momentum to move a stock 10% isn’t equal for expensive stocks vs affordable stocks, at least not in my experience over the past 6 years.
I’ve seen way more stocks double from $20 to $40 than I’ve seen $100 stocks double to $200. It’s just the way it works. If the stock market was just based on math, it’d be easy to figure out, but you have to add in risk, emotion, fear, etc. I wouldn’t buy google at $500, it’s a huge risk, but I’d buy 50 shares of Google at $10, but why? It’s the same amount invested, but the risk is much lower, (whether you believe that or not) my money is diversified by having more shares. I can dump a fraction or all at any time. It can only drop $10 a share vs $500 a share, big difference. It’s all emotional, sure, but it’s how the market works. Same reason absolutely crappy companies that have no business being in business and no profit and a debt the size of Nebraska have extremely high stock prices. It’s not based on math, it’s based on emotion.
Compounded stock splits are what allow people, for example who own Coca Cola, to be massively rich at this point if they bought 20 years ago and still allows people to purchase new shares today. If it hadn’t split a bazillion times, people would be paying $20,000-50,000 a share or some rediculous amount. Stock has the same value, but emotionally it’s different and the amount of people who can afford it is completely different.
– Trader
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