and a passel of other market analysts predicted that a 4 for 1 stock split would be announced
at the Apple Shareholder Meeting. This rumor moved the market, but there are conflicting opinions to why. First, for the uninitiated, a stock split
is a zero sum game. One interpretation is that a firm considers its stock too highly priced for the average consumer and decides to split. For example, let's say that Apple is trading for $200 and you have one share. If a 4 for 1 stock split takes place, you will wind up 4 shares, instead of 1, but each share will be valued at $50. Did you gain or lose any money? No. It's all on paper. However, to those not familiar with the Buttonwood tree
, and that's a lot of us, it sounds like 'quick buy Apple and you'll be getting 4 times as much
'. The case for this sort of stupidity is well made by Barrons
Stock splits are nothing new to AAPL
. They've split 2 for 1 three time in the past
, in June 1987, June 2000 and February 2005.
There are two general schools of thought on the reason behind stock splits, and they are total opposites. The first theory is that a company will split a stock if it is in trouble to allow lower dollar investors to buy their shares at half the price and thus incur less risk. The other school of thought is that a good company realizes their stock is just too expensive for the small trader who has some cash on the sidelines. It is meant to give the small guy an easier way to buy some stock without needing to commit the $200 for a share. Both sides have their points and, to an extent, both points are based on smoke and mirrors since they do not effect the worth of the company or the aggregate value of the stock by one penny.