What is a "stock split"?

What is a "stock split"?

Traditionally when people buy stocks, they have to buy in round lots, usually lots of one hundred, although this is not as important today. However, if the price of a stock got really high, for example one hundred dollars, it would be a thousand dollars to be able to buy that one hundred shares. What a company does is to split the stock - 'stock split.' With the hundred dollar example, they might do what is called a two-for-one stock split, so they'll give you twice as many shares but decrease the value of those shares to fifty dollars. In doing that, they feel that it makes it easier for smaller investors to buy that round lot of a hundred shares, with less cost to going to do that. How a stock split affects an investor is purely psychological. The reality of a stock split is that nothing is happening. A stock split just changes the number of shares and the value of those shares. Now, what it might represent is that a company had just gone through a good upturn, a good growth period, and that's why it's doing the stock split. There's a lot of belief that if a stock split happens, the company must be great. It's just really a way in which a company is trying to keep its share price at a place where they think is appropriate for it in the marketplace.