TOA,
When the data were graphed, they showed that before the split the stocks did very well, i.e. they beat the market. After the split, there was no detectable difference.
This is exactly one of the points that started this discussion. It certainly seems that right after a split, most companies stock price underperforms for a limited period of time. I never considered that one would sell split shares right after a split, thinking they were were locking in any kind of gain. As I previously stated, I have sold my split shares, when the share price appreciated to the point of the share price before the split, to lock in profits. Why anyone would think that they were locking in profits immediately after a split baffles me.
One notable recent exception to the price decline after a split is ORCL. I was in fact hoping for a decline so I could pick up a few shares, but it did not happen. It is still on a tear.
The superior performance before the split reflects the fact that companies whose stocks have gone up the most are the most likely to decide to split.
The stock price of a lot of companies appreciate greatly simply because of a split announcement. It seems this would skew the study results somewhat.
The fact that the stocks do not behave differently after the split is why it should not matter to an investor whether the stock splits or not.
I don't understand this statement. The price of the shares of a company certainly may stagnate after a split, but one must consider the accompanying market conditions. Were they stagnant because of a lull in the market, or in the face of a bull or bear market?
In my opinion, as we have discussed, a split has no effect on the underlying value of an equity. So, in reality, it is all relative to investor sentiment.
Also, again, I simply fail to understand how one could make a statement that, "Stock splits have absolutely no effect on the long term value of an equity". That is why I asked you for the study you perused. Without an exhaustive review of the facts available, one must strongly doubt the results of the study.
Now, concerning the comparison between BRK.A and MSFT, I knew you would likely have a problem with the comparison. In my limited experience I simply know of no other company that has never had a stock split.
But you state:
Gates beat Buffett not because he split his stock more often, but because he created a hugely successful business. Lately Buffett has been suffering because he insisted that he wouldn't invest in anything he didn't understand (that's ok) and he did not understand technology (That is not ok when you are in the money management business and living at a time when technology is 30% of the S&P 500--and that figure counts Yahoo! under consumer nondurables!!)
Good point. Gates beat one of the most heralded investors of all times, and is a college dropout. And beat him most handily, I might add. Now, do you really believe MSFT would have the same level of value if the stock had never split?
I just did a little research on MSFT.
The IPO was on 3/13/86 and the IPO price per share was $21.
100 shares would have cost one $2100 (Forget commissions)
Now, MSFT has split eight times since the IPO. If one had held the 100 shares since the IPO, one would have 14,400 shares. The current per share value of the original shares had they not split would be $144,000, EACH( @ $100 per share). How many shares would you buy tomorrow @ $144,000 per? Honestly, I don't own any MSFT, because I have always thought it to be overvalued.
I guess that shows you what I know.
But I also won't be buying any BRK.A, even if it is currently about half the P/E of MSFT.
Do you still honestly believe that stock splits have no influence on the perceived value of an equity? If so, we will have to agree to disagree.
Have fun,
Phil
|
