6

I know it happens, but I've never seen it once.

I'm a total stock amateur; I just invest small-scale amounts that I have to spare for the sake of experience/practice and a maybe a little fun.

But why have I never seen a stock split? They just keep going up, the ones that do well, and I never see them get reduced that way.

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    Which stocks are you watching? If you just look at Berkshire Hathaway, there are reasons for it not splitting though I imagine you could look up which stocks are splitting if you want to watch it. – JB King May 6 '13 at 16:00
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    Because you weren't in Citibank or Beazer Homes. These two brilliant purchases dropped so low they needed to reverse split to stay over $5. – JTP - Apologise to Monica May 6 '13 at 16:59
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    @JBKing Berkshire Hathaway DID split it's B shares. – Loren Pechtel May 6 '13 at 20:32
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    Perhaps because you don't live in Brazil and haven't observed the Petrobras PETR3 stock... :) – woliveirajr May 6 '13 at 20:50
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    @LorenPechtel I assume JBKing is referring to the A shares, since they're a standard example of a stock that doesn't split. – John Bensin May 7 '13 at 2:39
14

Are you sure you're not just looking at prices that are adjusted for the split, e.g. Yahoo? For example, Gilead Sciences (GILD) split a few months ago, but if you look at a price chart, there isn't an interruption even though the split is clearly marked. (Look in the past six months; it split in January). However, you could also simply be watching companies that happen to not split, for a variety of reasons. This isn't a criticism, but rather just a consequence of whatever stocks you happen to be watching.

However, a quick search for information on stock splits yields a few articles (mainly from the Motley Fool) that argue that fewer companies are performing stock splits in recent years; the articles mainly talk about tech companies, and they make the argument that even though the shares in Google and Apple have a high stock price:

Google and Apple aren't all that expensive by traditional valuation metrics. Google trades at just 15 times next year's projected profitability. Apple fetches a mere 13 times fiscal 2012's bottom-line estimates.

These articles are a bit dated in terms of the stock prices, but the rationale is probably still good. Similar logic could apply for other companies; for example, since May 2009, Panera's stock price has climbed by almost a factor of 4 without splitting.

The articles also make the point that stock splits were traditionally seen as bullish signs because:

Companies splitting to bring their share prices back down to more accessible levels were optimistic in building those sand castles back up.

One could make a fair argument that the overall economic climate isn't as bullish as it used to be, although I would only be convinced that this was affecting stock splits if data could be gathered and tested. A stock split can also raise the price of a stock because if small investors feel the stock is suddenly more accessible to them, they purchase more of it and might therefore drive up the price. (See the Investopedia article on stock splits for more information). Companies might not see the necessity in doing this because their stock price isn't high enough to warrant a split or because the price isn't high enough to outprice smaller investors.

One interesting point to make, however, is that even though stock splits can drive small investors to buy more of the stock, this isn't always a gain for the company because professional investors (firms, institutions, etc.) have a tendency to sell after a split. The paper is a bit old, but it's still a very neat read. It's possible that more and more companies no longer see any advantage to splitting because it might not affect their stock price in the long run, and arguably could even hurt it. Considering that large/professional investors likely hold a higher percentage of a company's shares than smaller investors, if a stock split triggers a wave of selling by the former, the increasing propensity to buy of the latter may not be enough to offset the decline in price.

Note: My answer only refers to standard stock splits; the reasons above may not apply to a decrease in the number of reverse stock splits (which may not be a phenomenon; I don't know).

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    Yahoo adjusts the price as you noted. Their charts do a great job showing dates for the splits. OP can look at any number of stocks for that. CSCO, EMC, even AAPL. – JTP - Apologise to Monica May 7 '13 at 13:21
  • @JoeTaxpayer True. They have a similar display to Google Finance, which clearly notes the split. I used YF as an example because (as you said) the price is adjusted for the split, and some sites that grab data from there will simply display the adjusted close, without indicating splits, which could give an indication that the stock never splits. – John Bensin May 7 '13 at 14:35
  • To be clear YF history doesn't, but the charts have a notation. – JTP - Apologise to Monica May 7 '13 at 15:29
6

You haven't seen one because you haven't looked for one properly. You can set a google alert for stock split and get information about major issues splitting their stocks quite regularly, as well as a daily dose of recommendations from people without a say in the matter for big companies to split their stock.

Stock splits are announced in advance by company management.

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1

If you want to see one split, well, a reverse split anyway, keep an eye on TZA, FAZ, BGZ, and any Direxion fund. These funds decay continuously forever. Once they get close to $10-$15 or so, they reverse-split them back to the $30-$50 range and the process starts over. This happens about once a year.

A few years ago I sent Direxion an email asking what happens when they run out of shares to reverse split and the reply was that's its an open fund where shares can be created or redeemed at will. That still didn't answer the question of what happens when they run out of shares. If they create new shares, the price will drop below the $10 level where many fund managers aren't allowed to buy.

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    "what happens when they run out of shares" -- I may be missing something, but doesn't that just mean nobody has bought in for so long that all the money has been paid out? So the total capitalisation of the company is less than $30 thus preventing a reverse-split to $30? I should think they've called a vote to wind the fund up (or perhaps triggered articles to require winding up?) long before that, so it never happens. – Steve Jessop Sep 12 '16 at 9:18

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