Home     About Us    Contact Us     Contribute     Privacy
Investing
Stocks
Bonds
Mutual Funds
Biz
Credit
Career
College
Economics
Tax
More
 
 
Marketplace
Related Articles
More
Related Discussions
Related Definitions
Related Categories
Tip of the Day

Tip of the Day Index Funds are Your Friend

Index Funds are Your Friend - Every stock market or stock exchange offers indexed funds and these index funds are more beneficial to you as a new investor as they...

read entire tip

Related Podcasts
Recently Added
Other Great Sites
 

Stock Splits

If you've been investing for a while, perhaps one of your stocks have split and you've therefore had some experience with stock splits or maybe even a reverse split. But for the beginning investor who is just starting out, stock splits and reverse splits are topics that I receive lots of questions about.

Stock Splits

Stock splits are really rather easy to understand. When you see a stock rising over the years and reaching triple digits, investors often think that the stock costs too much or it has reached its peak and is going to go back down. For the company's whose stock has been doing well, this is a bad sign and they want their stock to continue flourishing.

Here is where the stock split comes in. When a company's stock price starts getting rather high, they have the option to split their stock. What this does is it gives the shareholders more shares of stock but the price drops. For example, let's say you owned 10 shares of XYZ stock at $100 and it split 2 for 1 (you would get 2 shares for every 1 share that you owned). After the split, you would have 20 shares of XYZ stock but the price would be $50. Although the stock went through a split, you still have $1000 invested in the company's stock. Stock splits are a lot like giving someone four quarters in exchange for a dollar bill.

The myth behind stock splits is that after the split, the stock will take off again. There is some truth to this but it doesn't work in all stock splits. The reason that many companies and corporations split their stock is to stimulate trading. By reducing the cost of one share of stock, more investors are appealed to the stock and they can afford more shares. Because investors are confidant again about buying stock in the company, the stock price might rise.

However, this doesn't mean that the stock will quit rising if it doesn't split. If you take a look at Warren Buffet's company, Berkshire Hathaway, you will see that their stock price is at around $80,000 per share. They have never split their stock and they still continue to grow.

Stocks can split 2 for 1, 3 for 2, 10 for 1, or any other combination. When you hear a stock is splitting 3 for 2 it simply means that investors are given 3 shares for every 2 shares that they own. The stock's price would then be reduced by 33%.

Reverse Splits

Reverse splits are a lot less common than stock splits but still rather easy to understand. As their name says, they are the exact opposite of stock splits.

In a reverse split, you exchange more shares for fewer and the price of the stock increases accordingly. But like stock splits, you still end up with the same amount of money in the stock after the split.

Companies use reverse splits to raise their stock's price. This usually deters individual investors. Individual investors are often expensive and difficult to keep track of. But because the stock price increases, institutional investors like mutual funds and firms may be given the ability to invest in the stock. Institutional investors often have price requirements for stocks such as the stock must be priced at least $5 per share. When the stock does a reverse split, it may meet that requirement and more institutional investors can invest in them.

In both cases, you still have the same amount of money after the split as you did before. They just give more investors the opportunities to invest in them. I hope this has cleared up some of the confusion associated with splits.




Discuss It!
1 2 >

assisted living phoenix arizona said:

Lately, I have been thinking about investing in the stock market and my knowledge in this field was very little. So, it was my friend who actually suggested this site and to be frank, it had help me lot of stuffs which I havenât even heard before.

clash of clans cheats | castle clash hack said:

I essentially need to let you know that I basically take a gander at your site and I imagine that it especially interesting and instructive. I can barely wait to examine groups of your posts.

Dystrophic Calcification said:

I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog, I will keep visiting this blog very often

Error 0x800CCC13 said:

There's is an awful lot to stocks, I think I'll need an adviser when I decide to invest.

EZ Battery Reconditioning System said:

Great and quality info about Stock Splits

teds woodworking plans said:

I was searching for stock splits and I glad I found it here

get my ex back return said:

Great explaining on stock splits. I enjoyed it

Pure Natural Healing Program said:

Stock split is not very easily understandable.

purathrive turmeric reviews said:

Guide for the beginners to invest in stock market

Fat Diminisher Reviews said:

If there is an attack than the price of stock will go down.

ProSolution Pills said:

I never did understand this. Now I do.

diabetes destroyer reviews said:

Furthermore this is an extraordinarily restoring site. I might need to thank you for the attempts you have made in creating this article.

marijuana news blog said:

I have to favor your heart.I am believing the same best work from you later on as well.

Webhotelmatch said:

Really welcome this eminent post that you have obliged us.

mua ve so truc tuyen said:

Thanks for giving me this information. Keep posting.

bad credit car loans toronto said:

Moreover remarkable web diary here with most of the gainful information you have.

192.168.1.1|192.168.1.1|192.168.1.1|192.168.1.1 said:

I might need to thank you for the attempts you have made in creating this article.

192.168.0.1 said:

This article may useful for many individuals

MediPal said:

This post is to an unprecedented degree simple to take a gander at and see without slighting any purposes behind distraction.

Phenq said:

Love what you're doing here guys, keep it up!.. This is a great inspiring article.I am pretty much pleased with your good work

Most Popular Articles
Most Popular Definitions
Related Questions
 
Daily Definition

Definition of the Day Proof Of Concept

Proof Of Concept – (Proof-of-concept) Referring to the types and applicability, reliability or evidence, verification, confirmation and corroboration, even substantiation, or resilience of data, fact etc. Also called POC, showing its usefulness and applications, features and possibilities, allowing to an extent no to low risk exposure and exploration, prospecting if...

read entire definition

 
 

 

 

Home     About Us    Contact Us     Contribute     Sitemap

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Copyright © 2009 TeenAnalyst.com