Apple Stock to Split
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Natobasso
Tech-Bot 5000
Well, we're tossing around some big terms here and we could get into a whole semantic argument regarding what "value" means, but you can see my point. 
I think we can agree that a stock split is usually seen as good news and represents the fiscal health of the company offering it.
I think we can agree that a stock split is usually seen as good news and represents the fiscal health of the company offering it.
Natobasso said:Well, we're tossing around some big terms here and we could get into a whole semantic argument regarding what "value" means, but you can see my point.
I think we can agree that a stock split is usually seen as good news and represents the fiscal health of the company offering it.
Yep. But in the case of Dell's last split, it couldn't reverse the trend!
Here's hoping Apple continues to grow. (up over $3 currently!)
"I think we can agree that a stock split is usually seen as good news and represents the fiscal health of the company offering it."
That's the public's perception of it (which may in fact drive some short term demand) but it is not true from a purely analytical investment point of view and has zero long term impact except to "dilute" the outstanding shares. Think of it this way, come next week, the "value" of Apple will be spread out over twice as many shares.
It in no way truly represents the fiscal health of the company offering it, and one should NEVER buy a stock just because of an upcoming split. Buy the company for its fundamentals, not because you are about to get "twice as many shares".
In the long term, stock splits mean nothing. Literally. Nothing.
Just my three cents worth.
That's the public's perception of it (which may in fact drive some short term demand) but it is not true from a purely analytical investment point of view and has zero long term impact except to "dilute" the outstanding shares. Think of it this way, come next week, the "value" of Apple will be spread out over twice as many shares.
It in no way truly represents the fiscal health of the company offering it, and one should NEVER buy a stock just because of an upcoming split. Buy the company for its fundamentals, not because you are about to get "twice as many shares".
In the long term, stock splits mean nothing. Literally. Nothing.
Just my three cents worth.
Nope. Not even a little bit.
Stock splits are "feel good time" with no long term benefit.
Seriously, look at Berkshire Hathaway. Splitting has nothing to do with increasing value. In fact, the entire process is designed to be zero gain. In this case, twice the shares at half the cost.
Long term growth of a company is exclusively due to its business fundamentals and has nothing to do with the price of its stock or the number of outstanding shares.
20 years from now, Apple will be in the exact same position regardless of whether or not they issue a stock split next week. And its value (its worth as a company) will be based on that position and nothing else.
Stock splits are "feel good time" with no long term benefit.
Seriously, look at Berkshire Hathaway. Splitting has nothing to do with increasing value. In fact, the entire process is designed to be zero gain. In this case, twice the shares at half the cost.
Long term growth of a company is exclusively due to its business fundamentals and has nothing to do with the price of its stock or the number of outstanding shares.
20 years from now, Apple will be in the exact same position regardless of whether or not they issue a stock split next week. And its value (its worth as a company) will be based on that position and nothing else.
Natobasso
Tech-Bot 5000
lbj said:Nope. Not even a little bit.
Stock splits are "feel good time" with no long term benefit.
--[I don't quite agree with this. There's the long term benefit of adding more shares to the market. If the stock price keeps going up, and the shares keep splitting, those folks who have that stock have an increasingly more profitable position. How in the world is this NOT a long term benefit? It IS a long term benefit.]--
Seriously, look at Berkshire Hathaway. Splitting has nothing to do with increasing value. In fact, the entire process is designed to be zero gain. In this case, twice the shares at half the cost.
--[Berkshire Hathaway is a strange example because reallywho can buy much of this stock besides people who are already rich in the first place?
Long term growth of a company is exclusively due to its business fundamentals and has nothing to do with the price of its stock or the number of outstanding shares.
--[Nothing in life is exlusive. There are ALWAYS variables. Businesses succeed just as much with a little luck as they do with effort. Stock, if properly valued with a balanced P/E ratio (Price to Earnings) can be a determinant of a company's value.]--
20 years from now, Apple will be in the exact same position regardless of whether or not they issue a stock split next week. And its value (its worth as a company) will be based on that position and nothing else.
--[I see no rational explanation for this last statement. Just look at Coca Cola. You can only imagine how many times the stock for this 100+ year old company has split. If you had 100 shares of Coke stock from 1940, they'd be worth more than 100 shares of Coke today as a result of the stock splitting, and of course going up in price as well. If stocks didn't split, they'd all end up just like Berkshire Hathawayout of reach of most average consumers.
History doesn't lie. Well, that's a whole different argument altogether
]--lbj said:
The long term benefit is that the stock is more liquid. Dell traded 17.4 million shares today, out of 2.48 billion outstanding, or .7% of the company's market cap (~ $700 million). Berkshire Hathaway traded 120 A shares and 6970 B shares (effectively 232 A shares, since a B share is 1/30 an A share) out of 1.54 million total shares, or about .02% of the company. I'd say a few splits along the way makes quite a difference.
I don't quite agree with this. There's the long term benefit of adding more shares to the market. If the stock price keeps going up, and the shares keep splitting, those folks who have that stock have an increasingly more profitable position. How in the world is this NOT a long term benefit? It IS a long term benefit.
Adding more shares to the market is not in itself a benefit. Not necessarily a hindrance either. It is what it is, adding more shares.
Your key words are if the stock price keeps going up. If the price keeps going up that is absolutely beneficial! The point is, that has nothing to do with the split and everything to do with the fundamentals of the company (again, this is all long-term perspective). Its not the splitting that puts those lucky folks in a more profitable position, it is the fact the stock keeps going up. In the end, and in the long term, a company cannot be more valuable than its worth and at any instant in time, at least with respects to the market place, that worth is a constant. If you spread that worth over more shares, you simply get lower price per share. Sure, you own more shares, but its a wash. Fewer higher priced shares, or more lower priced shares.
Do we even want to talk about how many companies split their stock in the great tech run-up of the late 90s? My only point is that a split in and of itself, does not increase the stock price in the long run.
Berkshire Hathaway is a strange example because reallywho can buy much of this stock besides people who are already rich in the first place? I don't think it really proves the point that splitting stocks don't increase value. It proves that scarcity and DEMAND increase value, though.
Its not a strange example at all. BH didnt start out that high, it grew that high by not splitting (and not splitting its price). The same increase in stock price will happen to any successful company that does not split its stock. Since the number of shares are fixed, the price per share goes up and up as the company gains in value.
And I wasnt trying to prove that splitting stocks increases or decreased value. Actually, just the opposite; Im saying splits have nothing to do with value. Long term value is determined by the companys business fundamentals. Nothing else.
This line also confuses me with respect to you argument: scarcity and demand increase value. I agree about the scarcity part, but splitting stock does not make it more scarce, it makes it more abundant. How is this bolstering the argument that splits increase stock price? And as far as demand increasing value, while its semantics, I would say that demand increases price. Short term. And then the bubble bursts.
"Nothing in life is exlusive. There are ALWAYS variables. Businesses succeed just as much with a little luck as they do with effort. Stock, if properly valued with a balanced P/E ratio (Price to Earnings) can be a determinant of a company's value."
I will concede on this one, nothing in life is exclusive and there are always are variables. But remember, Ive prefaced this entire discussion on long term. A business starting out needs luck just as much as anything else, but luck does not sustain it, not long term. Long term luck is skill. Balanced P/E? Not sure how this bolsters your side of the discussion, as P/E is accepted the ratio of a stock's market capitalization divided by its after-tax earnings over a 12-month period. And market capitalization is calculated by multiplying all outstanding shares by the share price. So from there, it is easy to see that splits do not affect P/E at all. Your numerator (P) will either be the sum of few high priced stocks or of many lower priced stocks. Again, a wash.
"I see no rational explanation for this last statement. Just look at Coca Cola. You can only imagine how many times the stock for this 100+ year old company has split. If you had 100 shares of Coke stock from 1940, they'd be worth more than 100 shares of Coke today as a result of the stock splitting, and of course going up in price as well. If stocks didn't split, they'd all end up just like Berkshire Hathawayout of reach of most average consumers."
Sorry. Not true. If you had 100 shares of Coke (which lets pretend had a no splitting policy, their current price would be outrageous, lets say $1,000,000 per shareI dont have the inclinations to do the actual math, or time for that matter). Instead, since they did split, you have a lot more shares, but each worth a lot less. However, if you multiplied it out, your net value would be $100,000,000 either way.
Your correct; splits make stocks more accessible to the average Joe, and that makes them trade back and forth far more readily. But that does not increase their value or price.
Heres where I think the problem lies: I agree, stocks split because their price has gone up, but the corollary is absolutely not true! Stock prices do not go up because they split.
"History doesn't lie. Well, that's a whole different argument altogether "
Your right, it doesnt. Look again at the late 90s. In the end, it is business fundamentals and nothing else.
"The long term benefit is that the stock is more liquid. Dell traded 17.4 million shares today, out of 2.48 billion outstanding, or .7% of the company's market cap (~ $700 million). Berkshire Hathaway traded 120 A shares and 6970 B shares (effectively 232 A shares, since a B share is 1/30 an A share) out of 1.54 million total shares, or about .02% of the company. I'd say a few splits along the way makes quite a difference."
Ok, Ill give you whatever it is you are trying to say but Ill have to add two comments. First, comparing the number of shares traded by a computer company versus any other company, on a particular day, only tells you that yesterday, more people were interested in trading Dell than BH or whatever other company you are trying to compare to. I really dont see how splits along the way made Dell more desirable than BH. And let me ask you, which would you rather own? Second, how does a stocks liquidity help its price go up? Again, fundamentals make the price go up.
Adding more shares to the market is not in itself a benefit. Not necessarily a hindrance either. It is what it is, adding more shares.
Your key words are if the stock price keeps going up. If the price keeps going up that is absolutely beneficial! The point is, that has nothing to do with the split and everything to do with the fundamentals of the company (again, this is all long-term perspective). Its not the splitting that puts those lucky folks in a more profitable position, it is the fact the stock keeps going up. In the end, and in the long term, a company cannot be more valuable than its worth and at any instant in time, at least with respects to the market place, that worth is a constant. If you spread that worth over more shares, you simply get lower price per share. Sure, you own more shares, but its a wash. Fewer higher priced shares, or more lower priced shares.
Do we even want to talk about how many companies split their stock in the great tech run-up of the late 90s? My only point is that a split in and of itself, does not increase the stock price in the long run.
Berkshire Hathaway is a strange example because reallywho can buy much of this stock besides people who are already rich in the first place? I don't think it really proves the point that splitting stocks don't increase value. It proves that scarcity and DEMAND increase value, though.
Its not a strange example at all. BH didnt start out that high, it grew that high by not splitting (and not splitting its price). The same increase in stock price will happen to any successful company that does not split its stock. Since the number of shares are fixed, the price per share goes up and up as the company gains in value.
And I wasnt trying to prove that splitting stocks increases or decreased value. Actually, just the opposite; Im saying splits have nothing to do with value. Long term value is determined by the companys business fundamentals. Nothing else.
This line also confuses me with respect to you argument: scarcity and demand increase value. I agree about the scarcity part, but splitting stock does not make it more scarce, it makes it more abundant. How is this bolstering the argument that splits increase stock price? And as far as demand increasing value, while its semantics, I would say that demand increases price. Short term. And then the bubble bursts.
"Nothing in life is exlusive. There are ALWAYS variables. Businesses succeed just as much with a little luck as they do with effort. Stock, if properly valued with a balanced P/E ratio (Price to Earnings) can be a determinant of a company's value."
I will concede on this one, nothing in life is exclusive and there are always are variables. But remember, Ive prefaced this entire discussion on long term. A business starting out needs luck just as much as anything else, but luck does not sustain it, not long term. Long term luck is skill. Balanced P/E? Not sure how this bolsters your side of the discussion, as P/E is accepted the ratio of a stock's market capitalization divided by its after-tax earnings over a 12-month period. And market capitalization is calculated by multiplying all outstanding shares by the share price. So from there, it is easy to see that splits do not affect P/E at all. Your numerator (P) will either be the sum of few high priced stocks or of many lower priced stocks. Again, a wash.
"I see no rational explanation for this last statement. Just look at Coca Cola. You can only imagine how many times the stock for this 100+ year old company has split. If you had 100 shares of Coke stock from 1940, they'd be worth more than 100 shares of Coke today as a result of the stock splitting, and of course going up in price as well. If stocks didn't split, they'd all end up just like Berkshire Hathawayout of reach of most average consumers."
Sorry. Not true. If you had 100 shares of Coke (which lets pretend had a no splitting policy, their current price would be outrageous, lets say $1,000,000 per shareI dont have the inclinations to do the actual math, or time for that matter). Instead, since they did split, you have a lot more shares, but each worth a lot less. However, if you multiplied it out, your net value would be $100,000,000 either way.
Your correct; splits make stocks more accessible to the average Joe, and that makes them trade back and forth far more readily. But that does not increase their value or price.
Heres where I think the problem lies: I agree, stocks split because their price has gone up, but the corollary is absolutely not true! Stock prices do not go up because they split.
"History doesn't lie. Well, that's a whole different argument altogether "
Your right, it doesnt. Look again at the late 90s. In the end, it is business fundamentals and nothing else.
"The long term benefit is that the stock is more liquid. Dell traded 17.4 million shares today, out of 2.48 billion outstanding, or .7% of the company's market cap (~ $700 million). Berkshire Hathaway traded 120 A shares and 6970 B shares (effectively 232 A shares, since a B share is 1/30 an A share) out of 1.54 million total shares, or about .02% of the company. I'd say a few splits along the way makes quite a difference."
Ok, Ill give you whatever it is you are trying to say but Ill have to add two comments. First, comparing the number of shares traded by a computer company versus any other company, on a particular day, only tells you that yesterday, more people were interested in trading Dell than BH or whatever other company you are trying to compare to. I really dont see how splits along the way made Dell more desirable than BH. And let me ask you, which would you rather own? Second, how does a stocks liquidity help its price go up? Again, fundamentals make the price go up.
lbj said:
Fundamentals have very little to do with it. The stock market is an auction, and a very emotional one at that. If fundamentals had anything to do with it, the .com's would not have been trading at PE's typically as high as 400.
And the volumes I compared dell and brk at are typical for those issues. Not the number of shares I was trying to compare, but the percentage of the market cap for the companies. The more accessible a stock is, the more desirable it is, and that drives the ratio between buy and sell orders, which the market makers use to set the price. And without splits, for most companies, the buy orders wouldn't be there.
lbj said:
Who would buy it a $1M per share? And with no buyers, the stock tanks. A stock will totally crash on the trading of a fraction of a percent of the total outstanding shares. And it's all on the ratio of buy to sell orders. It doesn't take much of a lack of buying.