How does the increase in share price compare to the increase in the market as a whole?
Well, would it though? Isn’t one of the rationales of a stock split (that I don’t see explicitly above) is that people, i.e., small investors, psychologically like to see small numbers rise a lot? Wouldn’t people like to see a $56 go to $75 more than a $168 stock go to $225?
How exactly could you test the response that the stock would have gone up 34% regardless of price? I’m sure that modern investment theory claims that would happen. How do they back it up?
True enough. There’s no way to prove it. Certainly though, you can’t make a dollars per share argument like was made in the post to which I was responding.
The stock split thing never made sense to me.
Well, I sorta saw how it meant something years ago, when a small investor had to buy a block of 100 stocks to avoid exorbitant broker’s fees. That hasn’t been true for decades, though.
There’s been a spate of splits recently, however and CNBC cites some possible positive outcomes.
However, many academic studies have noted various changes in trading patterns for stocks that split, though these changes are not uniform. One academic study published in the Journal of Risk and Financial Management in 2023 found several positive benefits:
trading volumes go up
liquidity, or the ability to trade a lot of shares without moving the price, improves
stock splits increase the shareholder base for the company
These changes may have subtle impacts on the stock price.
My rule is that the market is always irrational. Giant investor trading tamps down the psychological impulses but doesn’t quell them entirely. If some faction believes that a stock split means good times ahead it will act on that reasoning and prices will go up unless and until objective data drives them down.
You’re mixing up correlation with causation. There’s no way to truly determine if the split affected the stock’s performance. The argument that the stock is “easier” to buy, thus leading to a massive increase in its demand doesn’t hold much water. There are plenty of low dollar stocks out there.
A lot of casual investors think that a $10 stock must be better than a $5 stock, not realizing that a stock’s actual price is irrelevant. Are there 1m available stocks for that company, or 20 trillion? It’s about market cap, and company valuation.
I didn’t mean to imply that the split was beneficial to the stock value. I was trying to say that the split was beneficial to ME, because the stock price has gone up $19 a share since the split (for whatever reason) and I now have 3x the shares.
And I’m saying that it wasn’t the split that was beneficial to you - it was simply owning the stock that was.
But that doesn’t make sense. Yes, I owned (let’s say 50 shares) stock. Then “poof” now I have 150 shares. That benefits me when the value goes up. I’m not saying every stock split is going to work out that way, but in this case it has (so far.)
If they hadn’t split, the price would have gone up $57.
You think Walmart’s stock would have gone up $57 a share since February?
Yes - owning a stock when it increases in value is beneficial. And I don’t mean that to be snarky. Investors and analysts don’t measure performance in terms of incremental dollars - they measure by percentage. So Walmart has increased by ~25% since late February. If the price of one stock was $1 or $100 or $1000, it would have increased by the same percentage.
Yeah - why wouldn’t it have?
I think their stock split didn’t affect their market cap, so yeah, $57.
If stock splits inherently affect the future share price, for the better, every company would do it all the time.
I’ve owned their stock for many years and I don’t ever recall it growing to that extent.
Here’s a link to their 5 year stock price history.
It just did.
Look, you had it right in the 3rd sentence of your OP:
This is still true. The net value of your investment is unaffected by the split. Full Stop.
They may operate on the periphery to lubricate a few marginal trades, or make some other Treasury activity easier or more in line with business goals. What it will not do is drive massive additional volatility because the share price numbers are smaller.
There were extremely high gains in 2020, for obvious reasons. Going back further, there was a considerably high run in 2018 and 2019. 2012 had significant gains.
If you follow your link, you’ll find dozens of articles written by analysts (most of which are likely paywalled) that discuss and pick apart $WMT. They focus on Walmart’s strong quarterly earnings reports, the recovering economy, etc. The amount of shares that traded as a result of the stock split is a rounding error - it just doesn’t factor in.
Think of it as a $20 bill instead of a stock. If you do a 2:1 split on your $20 you now have 2 $10 bills (still $20) & if you do a 4:1 split you now have 4 $5 bills (still $20). No difference in your net worth.
Further, if the company pays a 5% dividend (or the price increases 5%) you’d get $1 for each $20 bill you owned. Or you’d get 2x 50¢ for each $10 bill you owned (still $1). Or you’d get 4x 25¢ for each $5 bill you owned (still $1).
In olden days, a lower stock price would make it more affordable for the average Joe investor because there was an extra cost if you bought < a round lot (multiple of 100 shares); that is not the case anymore but old habits/ways of thinking die hard.
Now if you want to make it totally analogous to the Walmart example & do a 3:1 split, I will *gladly* give you as many $6.67 *genuine* US currency bills for every $20 you'd like to give me. ;-)
The value of the company goes up, which is reflected in the stock price. The number of shares that it’s divided by doesn’t change the value of the company.