Friday, September 10, 1999

Split Logic

By Paul Corcoran (slobuck)

Oh, the joy of a stock split.

We all know it's just another way to look at the same thing. Not much different than taking a stack of $2 bills and getting a much bigger stack of $1s. But it changes our view, and it can feel so good!

I remember buying Amazon at $170 and watching the shares rise, then plummet to their current level -- hovering around $120. I had to admit to my wife that I'd lost $50 PER SHARE! There's no joy in picking a (short-term) loser -- even when you're playing the long-term game. Nothing to brag about at the cocktail party. Certainly nothing to write home about. I bought on the bubble -- I didn't listen to the Wise.

But then came the split! And along with the wonder of owning twice as many shares (changing in the $2 bill for twice as many $1s), my loss per share was magically cut in half! The split adjusted price is now at about $60 and my adjusted purchase price is $85. What great news! I'm going to go home and tell my wife that we're on the comeback trail. Our loss is only $25 per share for now -- not $50. And the other good news: we have twice as many shares!

Okay, this excitement is clearly lacking in logic. Sort of like the kid at the fast food place offering twice as many fries because they've been burned. But who cares! It's a little spin to make the short term lumps a little easier to take. And there's always the long term.

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