Thomas: Other than perhaps psychological, stock splits make no difference whatsoever. Wall Street works on a "per share" basis. If you buy a stock just before a split, you will pay X times earnings and Y times book value. Immediately after it splits, the stock price will be lower, but so will earnings per share and book per share, and the stock will still be selling at X times earnings and Y times book.
The way you make money is if, over time, either the earnings and book go up or X and Y increase. Vice versa, of course, for losing money. People tend to waste a lot of time thinking about whether they should be buying or selling something before or after a split, but studies have shown that it makes no difference.
There are a lot of idiots out there these days who think that splits mean that they are getting something for nothing, and they rush into buy a stock as soon as a split is announced. There are so many of them around that stocks do tend to pop on the news, but unless you get into the stock one second after the split is announced (or even better, the day before) that herd effect is over in a day or so. And I am not sure it lasts long anyway; the sort of clowns who buy on that basis, knowing nothing more about a stock than that a split was announced, will get bored in a few days and sell it to rush into the next split announcement stock they see. |
