You got out of bed, poured yourself a cup of coffee, and casually logged on to see how your portfolio was doing this morning. Everything was going fine. Pleasant thoughts rattled about as birds chirped outside your window.
That was, of course, until you pulled up a quote on eBay
What in bidding blazes is going on here, eBay? Meg, Meg, Meg, what have you done? "This was the same company that once acquired Half.com," you mutter, "and now it's halved and I'm gone!"
Relax. Wipe those java stains off your computer monitor. It's only a stock split. Yes, prices were halved on shares of eBay last night, but investors now own twice as many shares as they used to in the world's leading swap site.
Why do companies split? The common argument is that a lower price point makes a stock more attractive for investors. Don't believe it!
You don't need to be babied like you're ordering a footlong sub at Subway. However, it's the same principle. You're getting that sandwich cut in half, but if you eat two halves, it's the exact same meal eaten whole.
Thanks to the emergence of low-cost discount brokers, it's no longer a commission-gouging task to buy in odd lot sums. Fundamentals will ultimately dictate a fair price, regardless of how many shares it has to be divided into to get there.
So feel free to go on with the rest of your day as planned. There's really nothing to see here, so it's best to move along.
If you still think stock splits are necessary to achieve long-term capital appreciation, two words will always serve as the ultimate argument killer: Berkshire Hathaway