A client shot a text tonight asking of Tesla (TSLA) would ever split their stock and if that was a good idea.
Most analysts and portfolio managers know that the split is simply an accounting function and adds no intrinsic value to the business.
The stock split has seemed to have gone out of favor or lost it’s “cachet” since the 1990’s though, and it was explained to the client that maybe more companies and Boards are following the Buffett philosophy and not splitting their stock.
Why ?
I’ve wondered if the growth of indexing and “passive” has something to do with the interest in doing a split. If you are in the SP 500, there’s a decent chance Vanguard is your largest shareholder and you don’t need a split for them. Better liquidity, more shares in smaller households, a more diversified shareholder base that probably doesn’t read proxies, might simplify the Board’s and management’s job, when faced with a tough vote, but those days seem to be gone.
Apple has split several times, possibly because it’s a consumer product and it wants to keep the shares “available” and at a price for brand loyalists to own. (That’s complete speculation as to the rationale.)
Another argument could be valuation: while the 1990’s growth babies doubled and tripled in a few years time, there is more sanity to this bull market, and the valuations within Tech (some of them anyway) aren’t that stretched, and so there is less reason to justify the split,
The valuation wouldn’t change on a split, but there is a perception by an individual investor that the stock is somehow “cheaper”.
The fact is I just don’t know why splits have seemed to be far less frequent in this bull market than the 1990’s.
But it’s a good thing in my opinion.
I told the client that Berkshire Hathaway Class A shares closed tonight at $337,421 per share. It’s always interesting to see how individual investors react to that share price.
Thanks for reading.
My personal email is brianglm@trinityasset.com if you want to send a note, make a comment or start a fight.
Thanks.