Why stock splits disappeared from our lives

Apple is splitting its stock 4-for-1 in two weeks. What does it mean for you? What might it mean for the broader market? And why have stock split announcements become so scarce in recent years? Did something change?

The peak of the stock split era was from 1995 through 2000. Investors were buying stocks specifically because they were about to split. It was one of the dopiest aspects of an already preposterously amateurish era of speculation and spectacle.

But there we were, buying stuff like Lycos and Excite@Home and SDLI Interactive as they crossed above 95 per share, eagerly awaiting the split announcement we knew would bring in the next wave of equally carefree buyers to replace us. The saddest part about the whole thing is that it actually worked. For awhile.

This year, over 40% of S&P 500 stocks are currently trading above 100. But almost none of them are undergoing a stock split. Why? In the new episode of my podcast, The Compound Show, I attempt to answer the question, and I think I have it right.

What do you think?

Listen here:

Check it out on Apple / iTunes podcasts

Spotify, Google, Stitcher – Find your favorite podcasting app here.


Some further reading on the topic and some of the resources I mentioned:

Stock Splits Pay Off—on the Rare Occasions They Occur (WSJ)

What the Apple Stock Split Means (WSJ)

The Propensity to Split and CEO Compensation (John Carroll University)

The Market Reaction to Stock Split Announcements: Earnings Information After All (U of Illinois)

Informed trading around stock split announcements: evidence from the option market (Monash University)

Here’s why Apple’s stock split might not be so bullish for its shares (MarketWatch)

Wall St.’s split personality (CNNMoney)

Stocks Splitting Amid Soaring Markets (Los Angeles Times)

INVESTING; The Math of Stock Splits: 1 + 1 = 2, or Maybe More (NYT)

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