{"id":54983,"date":"2020-08-04T10:47:00","date_gmt":"2020-08-04T14:47:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=54983"},"modified":"2023-02-10T13:33:52","modified_gmt":"2023-02-10T18:33:52","slug":"more-about-stock-splits-and-some-about-reverse-stock-splits","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/stocks\/more-about-stock-splits-and-some-about-reverse-stock-splits\/","title":{"rendered":"More About Stock Splits, and Some About Reverse Stock Splits"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Yesterday, in light of the upcoming 4:1 split in Apple (AAPL), <a href=\"\/campus\/traders-insight\/securities\/stocks\/apple-the-dow-and-a-stock-split-only-one-of-these-should-be-relevant\/\">we noted<\/a> how stock splits should be considered largely irrelevant to the investment thesis behind a company.&nbsp; Think of it as making change.&nbsp; If you have a $20 bill and I exchange it for four $5 bills, are you in any different financial shape?&nbsp; In the days before odd-lots were commonplace and before fractional shares were widely available, one could make the case that a stock split made a company more accessible to small investors.&nbsp; In the current market environment, does anyone have a valid concern that small investors are failing to participate in the highest flying shares?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Stock splits were quite popular in the high-flying days of the late \u201890s.&nbsp; The announcement, or even the rumor of a stock split was enough to send shares soaring.&nbsp; That said, we were in the midst of a market mania and many investors learned the hard way that splits, in and of themselves, mean virtually nothing to the fundamentals of a company.&nbsp; In that era, however, odd-lots were still frowned upon and fractional shares were not remotely considered.&nbsp; One could argue that a stock split did indeed improve a stock\u2019s investment prospects.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There is always the thought that a stock split ratifies a company\u2019s success.&nbsp; That\u2019s true, to the extent that only companies with soaring stock prices consider splitting their shares.&nbsp; Honestly though, does anyone need a stock split to ratify the investment performance of AAPL?&nbsp; Isn\u2019t a 130% one year price rise already sufficient to prove that point?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Until now we have discussed the basic form of stock split, when a company gives a holder a multiple of the shares they already possess in order to reduce a high stock price.&nbsp; The flip side of that transaction is a reverse stock split, when a company reduces its share count in order to raise its stock price.&nbsp; That type of transaction has been much more common recently, and is indeed a signal about a company\u2019s prospects.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Unfortunately, a reverse stock split is usually a desperation move.&nbsp; Various exchanges, indices and investment mandates require a stock to trade above a certain price to maintain a listing standard.&nbsp; If a company is unable to improve its investment prospects sufficiently to allow the market to value it at a higher price, it resorts to a reverse split to achieve that. Healthy companies rarely, if ever, encounter this problem, so markets rightly understand that a reverse split is a company\u2019s admission of weakness.&nbsp; Of course, by the point that a company needs to even consider a reverse split to meet listing standards, the market has already given its verdict.&nbsp; Recognizing this, markets are rarely fooled by the reverse stock split gambit.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Thus we have two types of stock splits, one benign but considered a positive; one malignant but usually recognized as such.&nbsp; Hopefully our discussion of the topic will offer some clarity amidst market hype.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Read Steve\u2019s Referenced Post Here:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"\/campus\/traders-insight\/securities\/stocks\/apple-the-dow-and-a-stock-split-only-one-of-these-should-be-relevant\/\"><strong>Apple, the Dow, and a Stock Split \u2013 Only One of These Should be Relevant<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>We have two types of stock splits, one benign but considered a positive; one malignant but usually recognized as such. In the current market environment, does anyone have a valid concern that small investors are failing to participate in the highest flying shares?<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":true,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[426,14700,6,8,9,22,26,3,177],"tags":[8152,8146],"contributors-categories":[13576],"class_list":["post-54983","post","type-post","status-publish","format-standard","category-financial-education","category-ibkr-market-insights","category-north-america","category-region","category-securities","category-stocks","category-text-articles","category-traders-insight","category-education","tag-reverse-stock-splits","tag-stock-splits","contributors-categories-interactive-brokers"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v28.0) - 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