Stock Splits Are Good Now

The conventional thing to say is that a stock split doesn’t change anything important about a company or its stock. You have a share of stock that trades at $1,000, you split it 10-for-1, now you have 10 shares that trade at $100 each, nothing has changed, who cares. In the olden days this mattered more, because it was cheapest and easiest to buy shares in “round lots” of 100 shares; a $100,000 round lot would price a lot of investors out of the stock, while a $10,000 round lot would increase demand for the stock. But in modern markets it is basically as easy to buy one share as 100, and at most retail brokerages these days it’s just as easy to buy 0.05 shares or whatever other fraction you want. So nobody is really priced out of a stock by a high-dollar price tag, so splitting the stock shouldn’t attract new investors, so it shouldn’t matter.

I have endorsed that conventional wisdom before, but I think by now I have been more or less talked out of it. Now I want to defend stock splits. Splitting your stock can make the stock go up, and there is a logical explanation for it. Here’s the news hook, from Bloomberg News today: