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.

Apple's stock has split four times since the company went public. The stock split on a 7-for-1 basis on June 9, 2014, a 2-for-1 basis on February 28, 2005, June 21, 2000, and June 16, 1987. You can find the history of stock splits for all of your stocks of interest at Stock Split History.

What does it mean?

A stock split does not change the value of the underlying investment. All it does is change the share price and the number of shares, by the same ratio, as announced by the company for their split. Here's another way of looking at a stock split.

You go over to Granny's house and as always she has served a great dinner. Now out comes the desserts and this time she's gone all out. There are cakes and pies and you have to decide where to start. Usually you go for th