Stocks splits on the decline. Should we care?

Stock splits are out of fashion. There was a time when companies seemed to be splitting their stock on a regular basis. The goal was to lower stock prices, keeping the per share price at a price point which most people would feel comfortable buying. Regardless, the split had no impact on the company’s value. Buying 100 shares for $80 per share is no different than buying 200 shares for $40 share.

source: WSJ

Today, splits are rare. Companies seem to be looking to emulate Berkshire Hathaway and are rarely if ever, splitting their stock. They seem to be viewing the higher stock prices as a sign of strength. Consequently, a growing number of companies have per share stock prices above $100. Amazon and Google are heading for the $1,000 per share plateau.

Ironically, Berkshire Hathaway split its shares. In 2010, the Buffett-led company divided its Class B shares 50-for-1 alongside its acquisition of railroad Burlington Northern Santa Fe Corp.

People who buy for non-value reasons are likely to sell for non-value reasons.

Remember, it doesn’t matter if the shares are split or not. If you are buying shares in individual stocks, ideally you want to buy when prices are cheap.

Most readers here are more interested in investing in index funds. Remember many such funds have beaten most professional money managers. Even mutual funds have been known to split their share prices.

 

Add Comment