Stock splits; no free lunch

Stock splits and reverse stock splits are common occurrences in the stock market. But realistically they don't mean anything. Here's why.

What is a stock split?

Let's look at what a stock split is using an example. In June 2014 Apple AAPL had a 7:1 stock split. If an investment account had 100 shares of AAPL prior to the split the value of the investment would have a market value of approximately $5,863.

From the table below you can see what the account would look like post split. With a a 7:1 split the account would now have 700 shares and the value of those shares would be adjusted accordingly. In this case they would be reduced by 1/7th bringing the share price to $83.76. Prior to the split the stock was trading around $586/share.

Note; the numbers are split adjusted and ignore changes in the share price which of course occurs all the time in the stock market. From the stock chart (below the table) you can see the stock price rose 1.6% on June 9th closing at a price of $85.10/share. The price change is irrelevant to the understanding of a stock split.