Grosvenor Capital Advisors looks to one of the most alluring of stock market myths; that stock split will result in shareholders having double the shares they had previously. Although a shareholder will have more shares after a split, those shares have been devalued, so even though the number of shares may have increased, the actual value of those shares will remain the same as before.
The reason that a company will do a stock split is primarily down to psychology. If a stock appears to have a high price it may cause some investors to stay away. The split is used to reduce the share price to make it more attractive to the smaller investor. Technically, a stock split can be for any ratio, but the most common ones used are 2 for 1, 3 for 2 and 3 for 1.
A lower price per share can provide a greater liquidity since it is easier to sell shares that have a lower price.
The truth of the matter is that stock splits don’t have any discernable effect on the overall worth or performance of a company. Although Grosvenor Capital Advisors does recognize the psychological fact that it is always nice to own more shares.
A lower price per share can provide a greater liquidity since it is easier to sell shares that have a lower price. This is especially true for very high priced stocks with prices in the range of several hundred dollars per share, Grosvenor Capital Advisors has seen the psychological reticence of many investors to buy such shares. A large difference between the buy and sell prices (bid/ask) can also deter investors.
The truth of the matter is that stock splits don’t have any discernable effect on the overall worth or performance of a company. Although Grosvenor Capital Advisors does recognize the psychological fact that it is always nice to own more shares.
Grosvenor Capital Advisors - Stock Split Truths.