A few weeks ago, I wrote a quick piece describing why a stock price does not matter. Clearly, there are many different opinions on this. Every time a company splits its stock price, it is usually in order to appeal to investors that do not believe in that theory. I personally do not get it.
Clearly, others agree. Look at the price of Buffett’s Berkshire Hathaway which has skyrocketed in the past few decades. That is perhaps taking it to an extreme as many investors couldn’t afford buying the stock.
That being said, there has always been a class B which trades at a much more affordable price. Even that had not been split though. Finally, a few years ago, Buffett was forced to oversee a split of the B shares to facilitate an acquisition that was being done in part with shares. That being said, it’s clear that Buffett is not a fan of stock splits.
Others are though. Numerous companies try to keep their stock in the $20 range or as they expect that price to be at an optimal point. People that think a stock that Google is too expensive because it’s worth $635 while Microsoft is a bargain at $32 are exactly the type of people that stock splits target. And if enough of those people end up wanting to buy or sell a stock because of its price, wouldn’t that have a “real impact” on how a stock performs?
Sure, it might. I would however think that the impact is not very significant. Given the fact that Apple (AAPL) remains a stock that I truly believe in, not only as a tech stock but now also as dividend value stock, I would much prefer that the company not split its stock price. I prefer that those thinking the stock is too expensive stay on the sidelines. Thankfully, CEO Tim Cook seems to agree as he said he did not plan to split because it has never proven to add any sustainable value.
Perfect… now how long until Apple hits $1000?
Google+If you liked this post, you can consider subscribing to our free newsletters here