Prof. Tyler yamazaki

 
Stock Split Advantage
A company usually declares a stock split when the price of its stocks gets
too high that is no longer attractive to investors. When the price of stocks

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gets too expensive, it tends to project an image that it has already reached
its peak and make people think that the stocks are no longer a good
investment. Also, when the price of stocks gets too expensive, it tends to
discourage investors from buying them. Hence, a company will declare a
stock split.
So, how does a stock split work? For example, if you have 30 stocks at $20
each and a stock split is declared, then you will end up with 60 stocks at
$10 each. It is a fair division. The number of stocks will increase after the
split, but their price will also decrease. It is worth noting that a stock split is
not limited to dividing a stock into two. A stock split may divide a stock
into three or even more splits.
The way to use this strategy is to examine a company that has just declared
a stock split. If the stock split was legitimately done due to a flourishing
business, then the stocks of that company may be a good investment. Of
course, you should also find out as much as you can about a company and
make your analysis. Relying on a stock split alone is not a good idea.
You should be aware of the reverse split. The reverse split is also like a
stock split but in reverse. Unlike a stock split, a reverse split is a bad sign.
Remember to stay away from companies that use a reverse split.
Here is how the reverse split works: if you have 10 shares of stock at $10
each in Company X and a reverse split is done, then you will end up with 5
shares at $20 each. As you can see, the price of the stocks has increased
significantly. A company may use a reverse split to entice investors to make
an investment. But, as you can notice, it is actually a fraudulent move. The
increase in the price of stocks is not caused by any progress or development
in business but merely by mere manipulation. Of course, a company who
exercises a reverse split may be successful in the future. However, such act
is a sign that the company is already struggling at the present time.
Although success is still possible, investing in a company that uses a
reverse split is too risky. After all, you can find other companies to invest
in.