Palm stock splits 2:1 in premarket today

Alexander Turcic · 03-15-2006, 08:18 AM

Palm stock investors be forewarned: Palm did not drop 50% today - there was simply a 2:1 stock split before the market is going to open today. What's the rationale behind a stock split? From Wikipedia:

It is often claimed that stock splits in-of-themselves lead to higher stock prices, however, research does not bear this out. What is true is that stock splits are usually initiated after a large run up in share price. Momentum investing would suggest that such a trend would continue regardless of the stock split.

Other effects could be psychological. If many investors think that a stock split will result in an increased share price and therefore purchase the stock, the share price will tend to increase. Others contend that the management of a company, by initiating a stock split, is implicitly conveying its confidence in the future prospects of the company.

Bob Russell · 03-15-2006, 08:54 AM

Here's one more angle on stock splits from Investopedia(!):

"Another reason, and arguably a more logical one, for splitting a stock is to increase a stock's liquidity, which increases with the stock's number of outstanding shares. You see, when stocks get into the hundreds of dollars per share, very large bid/ask spreads can result (see Why the Bid/Ask Spread Is So Important). A perfect example is Warren Buffett's Berkshire Hathaway, which has never had a stock split. At times, Berkshire stock has traded at nearly $100,000 and its bid/ask spread can often be over $1,000. By splitting shares a lower bid/ask spread is often achieved, thereby increasing liquidity."

03-15-2006, 08:18 AM	#1
Alexander Turcic Fully Converged Posts: 18,175 Karma: 14021202 Join Date: Oct 2002 Location: Switzerland Device: Too many to count here.	Palm stock splits 2:1 in premarket today Palm stock investors be forewarned: Palm did not drop 50% today - there was simply a 2:1 stock split before the market is going to open today. What's the rationale behind a stock split? From Wikipedia: It is often claimed that stock splits in-of-themselves lead to higher stock prices, however, research does not bear this out. What is true is that stock splits are usually initiated after a large run up in share price. Momentum investing would suggest that such a trend would continue regardless of the stock split. Other effects could be psychological. If many investors think that a stock split will result in an increased share price and therefore purchase the stock, the share price will tend to increase. Others contend that the management of a company, by initiating a stock split, is implicitly conveying its confidence in the future prospects of the company.

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03-15-2006, 08:54 AM	#2
Bob Russell Recovering Gadget Addict Posts: 5,381 Karma: 676161 Join Date: May 2004 Location: Pittsburgh, PA Device: iPad	Here's one more angle on stock splits from Investopedia(!): "Another reason, and arguably a more logical one, for splitting a stock is to increase a stock's liquidity, which increases with the stock's number of outstanding shares. You see, when stocks get into the hundreds of dollars per share, very large bid/ask spreads can result (see Why the Bid/Ask Spread Is So Important). A perfect example is Warren Buffett's Berkshire Hathaway, which has never had a stock split. At times, Berkshire stock has traded at nearly $100,000 and its bid/ask spread can often be over $1,000. By splitting shares a lower bid/ask spread is often achieved, thereby increasing liquidity."

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