Stock Split Rationale

by TripleBrain

Just wanted to clarify stock splits with people that have confusion about its “real” value.

When a stock splits, essentially nothing happens on the market cap side. It’s taking what you have and dividing it up into smaller pieces, but the net value does not change. I’m sure you all understand this.

So, the arguments about Apple and Tesla stock splits having no effect on the value of the company is effectively true. But here’s what some of you that think this is missing: Retail buyers like us are not concerned about market caps. We care about price! The dollar value per share is what matters.

Just think about the last time you purchased a stock and went to look at its market cap, eps, etc. I can safely assume most people in here are not about that. If you see it looks cheap, it’s a buy. THAT, is the real value of stock splits.

I get the analogy of breaking a pencil in half still yields only one pencil. I just read a retard comment about cutting up a pizza in 100 slices is the same as cutting it into 8. But is it really? If it’s cut in 100 pieces, just about anyone has the stomach to eat it, but when it’s cut in 8, there are significantly fewer people that can or want to eat the slices because of its size.

Point is, there stock splits broadens the market and makes the stock look much more attractive, and in this market, the “look” is more important than the actual value.

Take it this way, if Apple went for a 100:1 split, and now it’s at $4 a piece. Would you pay $5 to get a share? But you’re paying a premium? Yeah. You would, because the look of it is too appealing and psychology we are made to believe that if anything, it can double. But would you pay $500 to get a share when the stock is at $400? You see the difference in scale?

And for those that are talking about fractional shares negating the value of stock splits. Wrong. Fractional shares are significantly less attractive. Take for example, Berkshire Hathaway or any high cost ticker. Would you buy a fractional share and own 0.04 of a share or would you rather see a stock split and own 1 full share? It’s pretty simple, no?

Take tesla as an example: $2000. I have $500, do I want 0.25 of a share or would I want them to split and own a full share. You see… psychologically, it’s different.

 

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.