Stocks101 | Investments 101 | Finance 101
A Stock Split Doesn’t Mean A Change Of Company’s Fundamentals
Stock split
∘ Stocks101 | Investments 101 | Finance 101
· Have you?
· A Company splits stock Doesn’t Mean Giving Profits
· *Key takeaways*
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Marko -white board finance .Have you ever wondered why a Big company Such as Tesla Splits its Stocks? It’s because they want more eyeballs for their stocks.
Have you?
Oh, Well, nope.
A company splits stocks to attract new investors or retail investors( small Investors)
A Company splits stock Doesn’t Not Mean Give Profits
*Myth* — Price of the stock remains the Same
*Myth* — A company’s Fundamentals change as soon as stock splits.
*Myth* — You’ll get a different stock once the stock splits
Oh, I just heard the news about the change of management of XYZ Company.
Well, Nope, it’s not like that. It’s just a rumour without any actual evidence. See, suppose you bought a strawberry cake with cherries on top and now, you want to distribute it among your family members. You divide the cake into 5 pieces. Try asking
1) After dividing the cake does its colour change? No? Or yes? *shake your head * if you don’t know ☺
•∆• Or does it suddenly becomes a blueberry cake 🎂 ? From a pink to Blue colour
•∆• Do the 🍓cake’s ingredients change? After you divide the cake?
Yes (*nods head *) or No (* shakes head*).
So, the ingredient of the cake does not change, the colour doesn’t change into blue (blue — blueberry cake or black for black forest cake 🎂 ) and it doesn’t change to a whole new cake overnight after the division of the cake. You know, the whole cake is huge and is way more expensive than the pastries 🥧. On that note, I might as get myself a cake.
So, back to the article here, before I forget the concept.
So, you got the concept of cake right? Remove the cake from your mind and now add a Tesla stock. Now, you’ll find the stock in place of 🎂 cakes. Now, everything that the cake has experienced happened with the stock, funny, right?
So the fundamental of the stock (strawberry cake ingredient ) did not change, The company’s outlook, (Colour of the cake) doesn’t change and A stock of Tesla doesn’t change into A stock of Amazon overnight(A 🍓 cake doesn’t turn into a blueberry cake all of a sudden ) This is highly unlikely. But what would change is the price of the stock. It will become cheaper. ( 🥧 will be cheaper than the whole cake 🎂 )To attract more customers the whole cake which is an unsold cake which has been in the market for some time now is cut into 🥧 to get more new buyers and is made cheaper so more people invest in the 🍓 cake (stock).
*Key takeaways*
Stock splits are a method adopted by companies to attract more retail investors who might invest if they feel like a stock is made cheaper.
A stock split doesn’t mean a new stock is formed. It just made its tiny replicas without changing its DNA. A complete copy of the original piece or stock piece.
• Company’s Fundamental does not change.
• Price is made cheaper.
• A strategy to get more new investors.
• A stock doesn’t become something else overnight.
Stocks have played a meaningful role for investors. And I can see the stock market as a big hurdle for newbies. It doesn’t mean it's boring. It's fun when you try to know the subject and have a mentor to clear your doubts. I hope you had fun reading the stuff.
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