A Stock Split Would Imply That A Given Stock Holder Would Get Twice As Many Shares As He Or She Originally Had

Category: Finance.

I think when doing anything that has a desired end in mind it is crucial to gain as much information as you can so that you use you time effectively.

A stock split would imply that a given stock holder would get twice as many shares as he or she originally had. There is a big myth out there in the stock market when it comes to stock splits. The common mistake made by those who do not understand splits is the notion that the stocks hold the same value after the split. The actual value of the stock is split in two. This is not the case. In other words it is now only worth half of what it used to be.

As a consequence the value of the stock is the same as it was before the split. This is very important to understand. The question then is. Mainly it has to do with the psychology of the investor. Why do companies do this? When a stock is very expensive say$ 80 a share a lot of potential investors would not buy it because it is so expensive. Not all stock splits are split in half.

When the stock is split now it is worth$ 4As a result it is more attractive to buy because it is affordable. There are a number of ratios to determine a split. There is also what is known as a reverse split. Some of the ratios include 2- for- 1, 3- for- 2 and some even go to 3 to Stock splits do not just go one way either. In this case the amount of stock is reduced. The goal of the company here maybe to increase the value of the stock so that they can stave of de- listment.

This type of split is less common. Whatever the case just like anything else, understand the fundamentals of what you are getting involved in. Be informed and make some money.