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Steve_A's avatar

Are stock spilts ever a bad thing?

Asked by Steve_A (5120points) July 17th, 2010 from iPhone

It seems from my understandig stock spilts are a good thing. It usaully means companies are optimistic on their future and allows for investors to more easily afford that companie’s stock.

Is there a flip side, any cons or negtative impact of spilting
stocks?

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8 Answers

Kraken's avatar

I don’t believe in a public stock market.
all stock splits are bad if they are done at too low a price level whereas the shares now shown on the market become too intangible hence leading to a decline in share value.

I think all shares should be privately held and that is why the great depression happened and that is why day traders are speculative vampires and how honest people get bilked out of billion aggregate every day.

I believe in the market and stocks and shares and splitting but only if it is privately done. There is no corruption, No Ponzi schemes, no senior citizens getting bilked out of their retirement, no 401K fizzle outs.

The Stock market has been the #1 reason that free trade cannot exist and that outsourcing exists by GNO’s the very scourge of society and a great reason why my country the USA buys items from communist China but for some mysterious reason cannot buy sugar or cigars from Communist Cuba which is an AMERICAN state and we will prosper better if we support the economies of our own hemisphere well before we foster those of our own potential future enemies.

USA = Dumbing Down = Correlation to the downfall of the Roman Republic.
Once the Nukes start flying, welcome a bizarre new dark age and watch a lot of Mad Max.
Incompetence = Disgusting and the world will pay with 5 billion DOA from explosive payloads. We better declare 1212 unilateral non-attack year or else…

GeorgeWood's avatar

I’m not sure if a stock split can be categorized as good or bad. In general, a stock split happens to lower the price of the stock. This keeps the stock affordable for small investors and stabilizes the stock price.

You might find investopedia to be helpful.

Austinlad's avatar

Obviously, it also gives you twice the number of shares which, if the value of the company goes up over time, increases the value of your investment without your needing to buy more shares.

LuckyGuy's avatar

Yes.
Theoretically everyone has twice then number of shares they had before the split at half the value. But in practice the result is different. The architects of the split are paid royally for their “efforts”. As are the board members who approved it, the CEO and CFO who announced it, and at least a dozen other top level hanger-ons. A stock split or reverse split are golden opportunities for them to draw more cash from the system without actually doing work that adds value.
Look at the financial data very closely, after the fact of course. You will see a small loss that cannot be explained due to market movement. You will also read in the financial report a year from now about payments made to XYZ Associates for financial consultations. Note the increase in the CEO’s shares
The percentage is so small it is easy to ignore. But the payments are in the many millions of dollars. (The CEO will use that little bonus to buy another yacht and XYZ is owned by the CEO’s wife’s cousin.)

GeorgeGee's avatar

Sometimes it’s a sign of trouble. Companies can sell stock on the stock market to have more working capital. So if they’re in trouble and running out of money, what can they do? Issue more stock! But instead of issuing 100,000 shares at $10 to raise a million, why not try to confuse everyone and pull a switcheroo while you’re at it? Time it with a stock split and sell 200,000 shares at $10. Twice as much money, but you can make it look like you were only selling 100k shares. (blame the difference on the split).

LuckyGuy's avatar

@GeorgeGee (Less the 25,000 shares that go to the CEO and his buddies.)

cazzie's avatar

Don’t companies do this kind of thing to raise capital quickly? It can be a sign of the company being optimistic or desperate. Read the company prospectus WELL.

perspicacious's avatar

When it’s a reverse split it may be a bad sign. Keep up with what’s going on in the companies in which you own shares.

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