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Transcript

What are stock splits and should you be looking for one? I'm Doug Gray, president and founder of the Wealth Guardians and the Ray Financial Group, And I'm Bryce Spain, and you've entered the Vault, the Wealth Guardians video series on all things pertaining to retirement planning. In this episode, we're going to talk about stock splits. We're going to define what they are, talk about their history, why they went out of favor years ago, and why they might be coming back in favor now. We'll also talk about what master investor Warren Buffett's thoughts are on them. I'll bring your attention to these like and subscribe buttons down below the screen there, as always. And click on those if you want to catch future episodes of The Vault with Doug Garrett and myself. Alright, let's go ahead and get started on this one. Doug. Stock splits, right? Start off by defining them. What are they? Well, there's two types of stock splits. There's a reverse split and there's your normal stock split. So let's start with that one first. Let's say a company's board of directors. Thanks. Their stock is a little bit too high. See, See, you got a stock that's selling for $100 a share. So they'll declare A2 for one split, which means the day the stock splits in your account. You'll now have twice as many shares at half the price. So your account value has gone up. It's the same, but the price of the of the stock has gone down. And Bryce, the reason they do that is because. They want to get more stock and more people's hands, and it's easier to buy 50 shares of stock. That is 100 shares of stock and you know. It's a normal thing. Now let's talk about a reverse split. Yeah, reverse splits. Just the it's not really a split. It's more of a meld. Yeah, it is. Let's say you got a a dollar stock. OK. And they do a reverse 100 to one split. So now that $1.00 stock becomes $100 stock. Now there's negative connotations about reverse splits because it says that for whatever reason, that company stock is very look. That possible maybe it's very undervalued or could be a very poor right performing company, right? So that's what the split is, OK. Now they used to be more popular and then they fell out of popularity. Let's talk about that. Why did they, you know, back in the 70s and 80s we saw it happening all the time. Why in the last 1520 years or so have we seen them? Tend to go out of favor. Well, you know, that's a that's a question that's been debatable over the years. One theory is that many years ago, back when I got into the business, you typically bought stock in what's called round lots, or 100 shares at a time. And you know when you had the odd lot, which is less than 100, back in those days, they would put like a surcharge for Yeah, and at plus commissions on it. Nowadays there's virtually no commissions at all on buying and trading stocks. You could even buy one or two shares and not pay a surcharge. So I think over the years, that's one reason why. You know, like the the come out of savor. The other reason is that the board of directors thinks that, you know, big share price. It's a kind of a status symbol, right? Invidia $1200 a share, right? So that's one reason why it's coming back in the popularity. It's a good question. You know there was an is a trading strategy around splits. That a trader, for example, once a company announces its split, would go out and buy that company stock. And hold it through the split more times than not, after the split, the price of the shares rose because more people can afford to buy it. Sure. So that's that's one reason for the other reason we don't talk about your favorite investor, Warren Buffett, Uncle Buffett, Lauren was never a fan of splits or dividends for that matter, in fact. Right now. His Berkshire Hathaway a sheer stock. His $625,000 a share. Yeah, you heard me, $625,000 a share. Rice if you bought a round lot of 100 shares of that it's gonna set you back 62 and a half million bucks Yeah. I've been debating on whether or not to buy a lot of those yeah so. OK so perhaps Warren just likes to have the people invested in his company be the the Uber rich yes he doesn't want to have to deal with the. The amateur investor getting in into his godly institutional. Yeah, OK. He could even have the option of taking that off the public market and just have private investors. Excuse me? Yeah. Alright, so anything else to add about? List of that cover it. Well, you and I think we covered everything about OK, so there you go. We talked about the history, the definition and what of course, if it's important to you what Warren Buffett thinks of stock splits. Again, I'll bring your attention to these like and subscribe buttons down below the screen there. Go ahead and click on those If you want to catch future episodes of the vault with Doug Garrett and myself moving forward at any rate, this has been the vault on Bryce Payne. I'm Doug Wright catch you next time.