| Investing in the stock market can be an incredibly | | | | stock that's trading around $100, but they would like |
| hard thing to do. There's so much to learn about, and | | | | to buy the stock if it was trading around $50. So |
| things seem to change overnight. Just when you get | | | | splitting stock may cause more people to buy it in |
| something figured out, the rules go and change | | | | the future. When more people want to buy a stock, |
| themselves and you have to learn about a thing all | | | | its value generally increases due to the effects of |
| over again! | | | | supply and demand. While technically not true (any |
| One thing that seems to confuse people the most is | | | | first year economics student can explain that you |
| the Stock Split. Most people don't know what to do | | | | haven't actually increased demand, you have just |
| when a stock that they own splits. Should you be | | | | moved to a lower or higher point ON the demand |
| happy? Should you be worried? Should you sell your | | | | curve) the logic seems to appeal to most everyday |
| stock? Should you buy more? Is it a good sign? Is it | | | | investors. |
| a bad sign? No one really seems to know. It SEEMS | | | | The two for one (or 2:1) split that I described is only |
| like it should be a good thing, but how can you be | | | | one type of stock split that we see in the stock |
| absolutely sure? | | | | market today. Another common split is the four to |
| That's exactly what I want to talk about in this | | | | one split (or 4:1). In this case if the stock was trading |
| article today. When you're done reading, you should | | | | at $100 per share and splits four to one, you would |
| have a fairly good idea of everything you ever | | | | now own four shares of stock that are each valued |
| needed to know about stock splits and whether or | | | | at $25 per share. Again we see that you are still left |
| not they are actually a good thing for your stock | | | | with $100 worth of stock (1 share at $100 is the |
| market investment portfolio or the end of the world | | | | same as 4 shares at $25 each). |
| as some people might have you think! | | | | Many times companies that split their stock are up to |
| So before we get into this in any greater detail, I | | | | something. They may want to use shares of stock |
| should first explain exactly WHAT a stock split is. | | | | to go after other companies, purchasing them with |
| Basically, a stock split is exactly what it sounds like. | | | | their own stock. A stock split gives a company more |
| Your stock splits in every way. | | | | shares to use to buy another company. |
| If you owned one share of stock that was currently | | | | Likewise, a company may issue s stock split as a |
| priced at $100, you will now own two shares of | | | | way to create a takeover defense against another |
| stock that each have a value of $50. Your current | | | | company taking over them! Sometimes stocks will be |
| price level is the same....which is $100 (1 share at $100 | | | | split, creating different stocks with different voting |
| or 2 shares at $50 each, it all comes out to the same | | | | powers that make it difficult for outsiders to gain |
| $100). | | | | control of a company. |
| Because of that fact, many people who really know | | | | Whatever the reason, you should be wary of a |
| what they are talking about suggest that a stock | | | | stock split because technically, as I've mentioned |
| split is a non-event! What's the difference? (they | | | | above, they serve no actual purpose. So if a |
| say). Well, for the most part, they are right. But | | | | company takes the time and expense to split it's |
| there are some things to take into consideration. | | | | stock, it is almost certainly up to something and you |
| People buy stock based on price points. Some | | | | should keep your eyes open! |
| investors may not be able to afford an expensive | | | | |