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What does a split mean?

Czar

Lifer
Oct 9, 1999
28,510
0
0
In the stock market, I´v been following stocks for few months now and I just dont get this split thing, what does that mean for the company and for their stock price?
 

Cable God

Diamond Member
Jun 25, 2000
3,251
0
71
A 2-1 split means your value dropped likely 50%, but your number of shares doubled :)
 

loogie

Banned
Oct 18, 1999
2,478
0
0
Well...it means they "split" town and ran off with your money....Be very afraid... :)
 

Windogg

Lifer
Oct 9, 1999
10,241
0
0
Splits are usually good events. Splits occur when the price of a stock reaches a high enough level that board members feel is out of reach of the average investor. To keep up the growth and expand the pool of potential investors, they institute a split.

They double the shares but half the price to make indicvidual shares more attractive to investors. You poition remains the same. Example, you have 100 shares of XYZ Corp @ $300 ($3000), a 2 - 1 split is approved. This means you now have 200 shares @ $150 (Still $3000).

Reverse splits are the opposite and usually signal trouble. For example KTEL recently have a 8 - 1 reverse split to try and get their share prices about $1 so they don't get delisted for the NASDAQ exchange.

Windogg
 

Double Trouble

Elite Member
Oct 9, 1999
9,272
103
106
Windogg is on the money. The funny thing is that people always get excited about stock splits, and the stock price generally goes up when a stock split is expected or announced.... but in reality a split in and of itself does nothing to the value of the shares. Double the # of shares, devide the value in half = net effect of 0.
 

Napalm381

Platinum Member
Oct 10, 1999
2,724
0
0
Just thought I'd add, not all splits are of the "2-for-1" variety. 3-for-2, 5-for-4, and other various multiples can also be found. The 2-for-1 type is certainly the most common, though.
 

HKSturboKID

Golden Member
Oct 20, 2000
1,816
0
0
I've been monitoring stocks for a while. Usually when there are a split, people starts a sell off. examples are aol...cisco...oracle..etc. its better you load up b4 the split and sell it the day before it splits or the day of the splits.
 

jjm

Golden Member
Oct 9, 1999
1,505
0
0
Depending on how you are charged for trading, a split can be a bad thing. If you are charged by the number of shares, you end up paying more in commissions when you buy or sell.
 

Pretender

Banned
Mar 14, 2000
7,192
0
0
Great explanation windogg, but you made a minor miscalculation: 100 shares @ $300, and 200 shares @ $150 would be $30,000, not $3000.
 

Windogg

Lifer
Oct 9, 1999
10,241
0
0
Pretender: I guess the ole saying is true, "There are 3 types of people in this world, those that are good at math and those that suck!!!" My "minor" miscalculation leads to SEC investigations. I guess its a good thing I didn't put my accounting degree to use. :)

Windogg
 

piku

Diamond Member
May 30, 2000
4,049
1
0
You guys have summed it up well :)

Some companys NEVER split for the exact reason of not wanting average consumers buying their stocks. Thats why you see some stocks in the hundreds, sometimes thousands, of dollars a share range. Usually they are big banks or something similar.
 

Ranger X

Lifer
Mar 18, 2000
11,218
1
0
The splits is something that hurts. :eek:

Ohh you wanted to know what a split in the stock market meant. ;)
 

cxim

Golden Member
Dec 18, 1999
1,442
2
0
to be able to recognize a split, you have to see the beaver very well from the correct angle.
 

Handle

Senior member
Oct 16, 1999
551
0
0
Other reasons for a forward stock split (2-1, 3-2, etc):
- to prepare for an event will occur soon which will dramatically raise the stock price
- to enhance the perception of liquidity
- to put the share price in a more accepted trading range

Other reasons for a reverse stock split (1-2, 1-10, etc):
- to put the share price at a more accepted trading range (eg. $5 minimum for a NASDAQ listing, I believe)
- reduce volatility
- reduce number of outstanding shares and shrink float (obviously)
 

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