Stock splits (increasing the number of stocks available) are always interesting to me because they seem to be a surefire way to generate positive news and stock momentum (as evidenced by recent splits involving Apple, Google, Amazon, and Tesla), but still it doesn’t really make sense.
I explain stock splits to my business class using a pie analogy. (Come to think of it, 80% or more of my analogies are food-related. I may have a problem.) If you had a large piece of Shopify’s pie and someone came and cut your pie into 10 smaller pieces, you still have pie?
The answer is clearly no.
So why are your new collective 10 pie pieces suddenly worth more than the original pie piece? You own the same percentage of the same company making the same profit!
Here’s a non-food description for you numerically minded folks out there:
Source: Visual Capitalist
The argument for rising stock prices after a stock split is that the new stock price makes it easier for smaller investors to buy, so the whole “original piece of the pie” is actually more valuable.
I’m not sure I completely agree with that logic, given the market’s recent ability to buy partial stocks, and the relatively small portion of the market driven by people even noticing stock prices. I think it’s much more likely that speculation driven by self-fulfilling prophecies is the source of this upward momentum after a stock split.
If you are interested in purchasing the shares before the split, the split will take place on June 29, 2022. You must be a registered shareholder before the end of the day on June 22, 2022 to participate.
This post Understanding the markets this week: April 17
was original published at “https://www.moneysense.ca/save/investing/making-sense-of-the-markets-this-week-april-17/”