|Mural by Sam Flores|
There are a few reasons a company typically does a stock split, the first is that it provides more liquidity since more shares will be traded. This will also lower the spread between the bid and ask prices of a stock. Another reason is a psychological barrier for smaller investors, some investors may shy away from expensive stocks simply because of the price of them. I know that there are a few socks I never plan on owning simply because of the price. For example Berkshire Hathaway Class A shares cost about $218,000 per share right now.... So unless the company decides to do a 218 to 1 split sometime soon I sort of doubt I will ever be a buyer.
Psychological BarriersOn a smaller example I even have a hard time investing in a company like Google for similar reasons, right now their stock is hovering around $580 per share, if I have $1000 to invest then that means I can only buy 1 share because I can't buy fractions of shares. (I realize some brokers may have ways to buy fractions of shares but that's not the point here.) Normally, if I am investing my money I don't want to get killed with more transaction fees than I have to, so I don't want half of the money I'm trying to invest to have to sit on the sidelines because the shares cost a lot. So that's a reason that I sometimes won't invest in a particular stock.
So in some cases waiting for a split might mean instead of buying a company like Apple at $700 per share and having a large amount of money sitting on the side after. Or waiting to buy after a split when it's $75 per share would mean that I can invest more of my capital in the same transaction.
Sometimes investors don't pay attention to the markets very much. I know a lot of people don't pay attention to stock prices like I do so if they have ignored Apple stock for a year then might not realize a split happened and just think that this is a "dip" in price to buy on. I know I have overheard Apple "fanboys" talk about this and I can only think that they only pay attention to the trends they care about, not investing as a whole.
I've also researched people's thoughts on buying before and after a split, some say there's a rise before and a fall after. And others say that there's a rise after the split... Either way no one has been able to provide concrete evidence so I honestly don't believe any of them.
What I do knowShort term - anything can happen, both before and after a split, so who knows! BUT, I do know that splits generally a response to good performance. I mean, if a company's stock is growing to the point that they feel it would be helpful to bring it back down to a level that average investors will be more likely to buy - then that's a good thing! The company's stock was rising to begin with so they want to keep the momentum going. I don't know if buying before or after a split is better, but I believe that long term you are looking at a solid investment so who cares about the day to day fluctuations that happen anyways.
Also, another thing to notice is that the title of the article already notes that I'm already psychologically interested in buying the investment, it's just a matter of when. It wasn't named "buy or sell before a stock split" for a reason.
Next up for me is Starbucks, this is another stock I own that just announced a split that will take place in just a few weeks.
In full disclosure, in case you didn't read the article, I am long on both V and SBUX. I also do not intend to add to my position in either of those holdings at this time. But that's mostly because I already have a significant position in both of them.