I don’t invest in $GME, but I noticed their investors are very excited about the stock splitting later this month. What does that mean and what are the implications?
I gather that if you owned one stock, you’ll own four after the split, but I’m not really sure why that’s cause for so much celebration.
Thanks!
In: 5
All a stock split does is increase liquidity. People over blow the meaning of a stock split. A single stock at $1000 split 10-1 will now be $100 and everybody gets 10x the amount of stocks they had. This does 2 things: the price looks more attractive to people, and you are more easily able to sell smaller portions of stock.
Pre stock split, people will see $1000 a stock and figure they can’t afford it, and that it is riskier. The latter isn’t necessarily true, but people think in funny ways. The former is a value of splitting the stock, it allows people with less money to invest in the stock. However, this is largely negligible. Most stock activity is done by people with a lot of money, so if we are allowing people who couldn’t afford $1000 to invest, they aren’t going to up the investing activity all that much.
Overall, nothing much else changes. Stocks are simply a portion of a larger sum. Market cap / # stocks = stock price. Changing the denominator does not change the value of the company at all except for the slight increase in investment activity explained above. Large institutions don’t really look at stock price, they care about the total cost of the company. The stock is just a more easily discussed number.
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