Stock split
What is a stock split anyways?
A stock split is simply where a company manually increases the number of shares the company has out on the market in order to decrease the value per share of the companies stock.
Why do stock splits occur?
Without stock splits you would have to be a math major to succeed in the stock market. Companies like exxon Mobil and Microsoft would be trading at 7,500 dollars per share if they had not had several stock splits over the past 30 years.
Also individual investors would have a hard time buying into individual companies if it were not for stock splits decreasing the price per share of a stock.
Can you give me an example of a stock split?
Absolutely. Company XYZ has had a big run up lately and management thinks that the 250 dollars per share the company is trading at is too high for the average investor to attain.
They decide to take place in a 5 to 1 stock split, which means the number of shares out in the market will be multiplied by 5 and the stock will be worth 5 times less per share.
After some paperwork goes through the stock has 5 times as many shares out on the market and is trading at 50 bucks a share now.
It is important to remember that stock splits are not necessarily good or bad. They do not increase or decrease the actual value of the company.
If you owned 10 shares of company XYZ in the fictional example above, you would now own 50 shares of the company but your holding would be worth 2,500 either way.