“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.
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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