Do Stock Splits Make Stocks Cheaper?

Do Stock Splits Make Stocks Cheaper?

Stocks might seem cheaper when a company splits its stock, but it doesn’t change the “value” of the company at the time the stock splits. I explain why using Apple and Tesla stock splits as examples!

Using dollar bills and pizza as analogies, I explain how you can split these into smaller pieces but it doesn’t change the overall value or worth of the original pizza pie or five dollar bill.

I discuss the recent stock splits of Apple and Tesla from August 2020 and share some what-if scenarios if they had not split, what their shares might be trading at in the stock market.

The irony is when a company splits its shares, more people tend to want to buy in because the share price appears to be nominally less expensive in dollar terms on a per share basis so it gives a false sense of affordability.

With the advent of fractional shares, the need for stocks to split their shares should be alleviated. Check out my video explaining fractional shares where many brokerages offer the ability to buy a partial share for many stocks.

I also explain how Berkshire has mostly resisted splitting its Berkshire A stock, but finally caved in 1996 to allow for the trading of a Berkshire B stock.

I also discuss how in 2011, Citi did a reverse split of 1-for-10 where 10 shares at $4.50 became 1 share at $45 so their stock would not appear to be so cheap in the market.

If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide:

I look forward to making more investor friends! Add me on Instagram: michellemarki