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Technology Stocks : Apple Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Ryan Bartholomew who wrote (170707)	6/9/2014 11:16:22 PM
From: Kip S	3 Recommendations Recommended By HerbVic Ryan Bartholomew Stock Puppy Respond to of 213176

It seems like heresy around here, but I believe the market is essentially rational and efficient, and certainly so for actively researched and followed stocks like AAPL. Remember, a market being efficient does not mean the price is "correct" every moment. It means that there are no systematic, exploitable inefficiencies in stock pricing. Given what I believe to be true, I guess Ryan and I are on the same page. One very important factor that has not been mentioned in this dialogue (well, HerbVic may have mentioned it) is that a stock split is nearly always accompanied by a dividend increase and, perhaps, more importantly, a stock split conveys positive information about management's assessment of the future. No one wants to split a stock and have it drop 50%. So, when management decides on a split, they are essentially saying "we are anticipating (very?) good results over the next year or two" (or pick your time period). This is extremely valuable information about the company's prospects. It doesn't guarantee management is correct, but it is a strong vote of confidence. The slight outperformance that seems to occur after split announcements is likely due to a dividend increase and a management vote of confidence. May not be popular here, but IMHO, this explains the positive post split-announcement upward bias. Kip

To: Ryan Bartholomew who wrote (170707)	6/10/2014 10:41:23 AM
From: pyslent	2 Recommendations Recommended By Doren Zen Dollar Round Read Replies (2) \| Respond to of 213176

If you're looking solely at stocks' performance after split announcements, then yes, ... If stocks performed notably better (risk-adjusted) after splits were announced , and through the date of the split, then it would be possible to benefit, but of course any such advantage would be short-lived because once the phenomena became known, it would get priced in readily. Here's a 1996 study in which this was the case: 1-year and 3-year returns for split companies starting the month AFTER the split announcement were found to be significantly higher than for a basket of control, non-split companies over the same time. This result was reproduced in a 2003 follow up. A summary is here: rightline.net A 1996 study by David Ikenberry of Rice University measured the short and long-term performance of stock splits. His research included all the 1,275 companies whose stock split 2-for-1 between 1975 and 1990. Mr. Ikenberry compared the split stocks to a control group of stocks for similar-sized companies in similar sectors that had not split. His results were startling. The split stock group performed 8% better than the control group after one year, and 16% better after three years. You can quibble over the logic of this correlation, but it doesn't make it false. Personally, I like the explanation that management wouldn't split stocks unless they believe the shares will continue to appreciate. Consistent with buying back shares and statements that the product portfolio is the "best in 25 years," Apple management is sending the market hints that they are confident.