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Hi Fools,

Stock splitting mid March on AMAT, JDSU and CSCO three in my port. This would mean more bananas wouldn`t it?
A cowardly fool is just beginning to believe in hairies.

Rob
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hey rob:

just a note...yes more bananas, no more value. splits only have a psychological effect on investors. if you're a LTBHer, you shouldn't really pay much mind to splits. all it means is you physically have more shares. but no additional value is created by a split. typically, a loose view of the history of a splitting company goes as follows:

company anounces a split.
excitement abounds and the stock price spikes.
the stock splits.
excitement dies down and profit taking occurs, dropping the price.
momentum buyers exit and the price levels out, returning to its normal growth curve.

hope this helps. welcome to the boards. you'll learn a lot here...i sure have, and i'm learning more every day! :-)

Foolishly,
chris
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Chris,

Thanks for the insight. I am just starting to investigate strategies of retiring gracefully and all that I`ve learned on these boards especially on the gg makes me feel a bit more confident about robbing a dusty looking piggy bank. I am LTBH and have yet to finalize a port. Does one ever? I doubt it, but at least the learning/anxiety curve is reduced and there`s more time for family.

Merci to Bruce too for the recent BRCM interview. If he had a voice recognition prog he might have been able to post a text .... but imagine the wobbly knobs involved.

Rob
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Somehow it's still fun to watch your stocks split.

I can just see the numbers rolling...

100

200

400

800

1600

.

.

.

Dick
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True a stock split has no real significance as far as value but to us poor types that can only afford a few shares with our pitiful cash it offers the opportunity to increase our long term holdings in good or great companies at a minimul cost therefore leading to greater returns in the future. Unfortunatly my time frame is only 10 years to get to finicial independance so I must take greater risks to achieve my goals. Stock splits of the companies I hold or am buying is a god send in increasing my shares. That is of course looking at the company continuing to grow and soon getting back to the presplit price. Just IMHO.
Dan
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Dan wrote:

True a stock split has no real significance as far as value but to us poor types that can only afford a few shares with our pitiful cash it offers the opportunity to increase our long term holdings in good or great companies at a minimul cost therefore leading to greater returns in the future. Unfortunatly my time frame is only 10 years to get to finicial independance so I must take greater risks to achieve my goals. Stock splits of the companies I hold or am buying is a god send in increasing my shares. That is of course looking at the company continuing to grow and soon getting back to the presplit price. Just IMHO.

I'm curious how this chain of thought continues to waft through the retail investment community. Let's say I've got $5000 to invest in a company that I have researched and want to buy those shares which cost $200 each. Yet, I feel the price is simply too high and I should wait for a split. I don't mean too high as in valuation, but simply too high for me to justify buying shares at that crazy price level. Let's say I forget about the split business and buy my 25 shares plus pay the extra $7.95, $14.95 or $19.95 commission charge depending on your brokerage arrangement. I've got my $5000 now invested in this company. Total cost = $5014.95 (using the middle commission rate).

Okay, let's say I 'wait for the big cost savings split' to occur which allows us 'poor types' with minimal cash to invest to buy lots of shares and maximize my returns and holdings. I'm already lost with the reasoning, but I'll continue. For the sake of argument, I'll consider that this divine company I have researched and want to invest in with the $200 per share price has announced a split which will occur four or six weeks from now. Yippie I shout - now I can load up. I knew it would be worth the wait. Let's say for the sake of argument that the share price between now and the split four or six weeks later hangs right in there at $200 per share (yeah, right). Splitsville occurs and the price is now $100 per share because in my best of all possible Candide worlds, the equity was fairly valued and nobody bought in anticipation of this great company's split nor did they pile in the day after it split, nor did anyone sell on the 'great split news'. That's good because, the price is right where I want it - $100 - which allows me to really 'load up' the portfolio cart. So, I take my $5000 and buy 50 shares at $100 per share and pay the commission of $7.95, $14.95 or $19.95 to establish my position in this equity. Total cost = $5014.95 (using the middle commission rate).

Now, going out 10 years of holding this equity which I bought for $5014.95 (25 or 50 shares) it has grown to a value of $95,000. Does it matter to me if that value of $95,000 is spread between 50 shares 10 years later (because a stock split never again occurred) or if I now have 800 shares with a total value of $95,000 after four stock splits have occurred. I've still got $95,000 and my selling cost will be the same whether it is 50 shares or 800 shares using my online discount brokerage account commission charge table from above.

I'm confused as to how "it offers the opportunity to increase our long term holdings in good or great companies at a minimul cost therefore leading to greater returns in the future." Would not the return on the equity be the same whether one buys 25, 50 or 1000 shares ten years earlier? Even if one bought 40 lots of 25 shares each to total 1000 shares, using the middle commission cost of $14.95 per trade - that's a total of $598 commission to buy those 40 lots of 25. Even though that would be the equivalent of three shares selling for the initial price of $200 which after 5 splits during the 10 years would be a total of 96 shares. If you had 1000 shares total whether you bought it all at once or via 40 lots of 25 in the beginning before any stock split occurred - the 32,000 shares you have after the five splits during the ten years might make up for the 96 you left on the table due to paying for all of those commissions ten years earlier.

Hmmmm....

BB



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No - there isn't any difference whether or not a stock
splits over the years. The important part is the
psychological effect on a person. The larger share
amount looks better to a person even though the $ amount remains the same. Even I fall into the trap
sometimes and I was a psychology major!
Nancy B.
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Bruce
I guess I used fuzzy logic and didn't explain my thoughts well and you scorched me well. Thanks for straighting me out.
Dan
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Dan,

I didn't mean to 'scorch' you. I apologize, but wanted to illustrate. I realize the psychology of splits and marvel at how, in the short term, people react to them. I'm guilty myself at times for getting excited when one of the companies in my portfolio announces a split. Rah-rah, bring out the pom-poms. I do it. However, if I've done my research and like a company and the current valuation - I don't wait for an upcoming split to occur before buying.

If you've got $500 or $1000 to invest in a great company that you have researched and feel is available at a fair value - invest it. Who cares if it is 9 shares or 18 shares? It's the dollar amount five to ten years from now that will be of the most interest.

BB

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I'm going to try to explain my fuzzy logic useing the reply from Bruce. Suppose I have $2,000.00 to invest and I have done some DD, now I have decided that instead of 10 shares of the $200.00 stock I will buy 5 shares and another 10 shares of copany B at $100.00 a share. I did this on my decision that I like the companies and believe in the long term they will repay my trust. Two months down the road co. A announces a split to be effective in one month. So after the split I now have 10 shares of each co. Ten years down the road co a has split 4 more times but co B never splits, so I have 10 shares of co B and 160 shares of co A (all splits were 2 to 1). Both co have had good growth but co B (Berkshire Hmmm) share price has grown to be over lets say $3,200.00 while co A has some how maintained a share value of $200.00 even after all the splits. Both companies have given me the same returns but in the real world how many new or small investers are going to look to buy shares of co B versus co A? I'm sure that there will be investors that can afford the high price of B and it is as good a return in this example as A but in this real world we are talking about high tech companies that grow and give great returns. In one of Bruces older posts he uses Cisco as an example that had returns in the 90"s of over 162,000%. I just looked at it and its price is $133.00 so obviously that returns includes many splits. Who would buy a share of Cisco at 15,000,000.00? I in no way tried to say that chaseing slits will improve my bottom line as a LTBH (maybe if I was a speculator and bought early and sold after the shares had been bid up)but if my companies do split and thereby keep the share price attractive to new investors I do profit more down the road as long as the company continues to execute and remain the dominant company I bought. I hope this has in some small way explained my reasoning.
On a personel point I felt you belittled my use of "us poor types with pitiful cash" You started you example with $5,000.00 to invest in one co. My circumstances at this point only gave me a total of $10,000.00 in my IRA to invest and I dont feel comfortable putting all the eggs in one basket so as unwise as it may sound I have purchased 3-5 share only in several companies. I may not be rich, famous or well respected, but I refuse to be belittled just because I don't have the means to buy big. On the other hand I do deserve to be flamed when I use fuzzy logic or don't support contentions I make. Thank you for your ear.
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On a personel point I felt you belittled my use of "us poor types with pitiful cash" You started you example with $5,000.00 to invest in one co. My circumstances at this point only gave me a total of $10,000.00 in my IRA to invest and I dont feel comfortable putting all the eggs in one basket so as unwise as it may sound I have purchased 3-5 share only in several companies. I may not be rich, famous or well respected, but I refuse to be belittled just because I don't have the means to buy big.

Let me be the fist to say I was not in any way trying to 'belittle' you. I was just quoting the words that you had typed in your post because I felt you were belittling yourself by using the words "us poor types with pitiful cash" and I didn't like to see that. I guess it really backfired.... That was not my intent. I know very well what a few planted seeds can grow into over a 10 to 20 year time span - believe me and I would never belittle that.

Whether an investor has $500, $5000, $50K, $500K, $5M or more to invest - I would never, ever belittle somebody based on the amount they had to invest. Never. I spent the summer opening three accounts for one of my sisters and her two boys after many years of encouragement. All three accounts were opened with $1500 each. I thought that was great and I spent the summer cheering her on to finally take the step to move from a credit union savings account to wanting to invest for 20 and 30 years from now. A few shares of Qualcomm and a few shares of Harley Davidson were bought for all three accounts. What a combination. Qualcomm split 4 for 1 in December and now Harley is about to split 2 for 1. So those 'few' shares are already 'more' shares in all three accounts.

I had no way of knowing the amount of money you had - just as you have no idea of the amount I have. It's not really that important when it comes to research and choosing great investments. Some of the most respected Fools that I know on this site have much less than your $10K base in your IRA that you mention and I bow to their research skills and to their knowledge. I simply used the example of $5000 as a random number. I have no idea why I chose that number. I could easily have used $1000 or any number. I know very well about accounts with little money as I started my children off back in 1993 and in 1995 with brokerage accounts as soon as the Social Security numbers were in hand. There were a few stocks they only owned 4 or 5 shares in at the beginning before splits started to occur over the years.

I really apologize for anything I said that was taken in a way that I did not intend it. I was really responding more in general to the theme I read all to often on these message boards about 'I'm going to wait for the split before buying because then it will be cheaper' and should have made it clear that it was directed at this 'group think' rather than any sort of a flame directed at you. My fault for not making that distinction. I make it now, although I realize it is too late and that I have offended you.

BB



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I may not be rich, famous or well respected, but I refuse to be belittled just because I don't have the means to buy big.

Its not about how much money you make, its about how much you make on your money.

... but I refuse to be belittled just because I don't have the means to buy big

Stop being so thin-skinned.

but if my companies do split and thereby keep the share price attractive to new investors I do profit more down the road as long as the company continues to execute and remain the dominant company I bought.

Point taken. Good luck with your picks.

Ace
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Bruce
I'll end this subthread with this: I did not get offended by your replies I just wanted to clear the air. I do feel that if I don't support my views then the replies I receive are deserved due to fuzzy logic or want to be's.
I really don't see how you can do so much research on so many areas as your excellent posts always show that you do. I wish I had your talent. I am a certified lurker on many boards and find it hard just to read all the good informative posts let alone glean ideas from them to do further research on. I must admit sometimes looking to others that I respect for their views to help in winnowing the possible good from the possible great. Another poster once said so many companies so little cash so little time. I feel overwelmed in trying to do the DD and pick the right stocks for my goals and timeframe, therefore I look forward in continuing to glean info from you and other great posters here and the other boards. Respectfully thanks.
Dan
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On a personel point I felt you belittled my use of "us poor types with pitiful cash" You started you example with $5,000.00 to invest in one co. My circumstances at this point only gave me a total of $10,000.00 in my IRA to invest and I dont feel comfortable putting all the eggs in one basket so as unwise as it may sound I have purchased 3-5 share only in several companies.

Dan,

(No I'm not talking to myself)

I think you missed Bruce's point. I fit your version of the small-time investor even more than does Bruce's definition. I started with just $2000 - half into QCOM and half into CSCO.

Now you might say, gee that's not very diversified. To that I will agree but at only $2000 I didn't feel much was being risked. I pinched pennies and reworked my budget until I found I could pitch another $1000 into the market every 3 months. My first goal was to diversify up to 4 stocks - which I am comfortable with.

My personal rule of thumb is not to keep brokerage costs at 1% or less per trade. With a $10 trading fee I see no point in investing in a company unless I have $1000 or more free.

Your logic suggests the stock price somehow affects this. Why? Whether I buy 50 shares at $20 a piece or 5 shares at $200 piece makes no difference. If you are willing to live with a 2% commission fee and pony up for two companies at $500 a piece, that is your choice. But I don't see how it validates your argument for a lower stock price. If you split the $1000 between 2 companies what difference does it make if you 5 shares for $100 or 50 shares for $10?

Another Dan
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Splits are weird.

For example, I own some BRCM and it just split 2-1.
It went up almost $27 yesterday.
I dunno if it would have run $54 pre split.
What happens is that if a stock remains closely held, the market dynamics that influenced the stock before the split stay in place.
Stocks like BRCM and I'd say most new Gorilla stocks as well tend to be tightly held, so when they split, the gains/losses don't follow the split ratio.

After a while, it evens out, but I friggan love it when my tightly held stocks split
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Most of us recognize that there are those Fools who have lots of money to invest, and those -- like me -- who dollar cost average and invest in a few shares at a time. I'd rather buy a few shares (I've bought as few as 3 shares) in great companies than lots of shares in a low share cost, low potential company. (By the way, as Bruce suggested, those stocks tend to SPLIT more often... that's the absolute FUN part, believe me...)

As a fact, I now invest about $2000-2500 a quarter, in one to three companies that I'm willing to LTBH (for those of you who don't recognize that acronym, you need to read more posts!!!) In other words, it's the company's long-term potential, rather than the amount invested. At that time, I might also add to my position in one of my great holdings that still has a huge upside potential.

To my mind, there is no such thing as a small investor (but there is such a thing as a "big-time gambler"). I congratulate you on your decision to invest (just make sure you use a discount broker -- I use Ameritrade -- so that commissions don't eat up so much of your available money to invest), and to do your homework to select great companies !!!

Keep up the FOOLISH behavior -- tm
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If you've got $500 or $1000 to invest in a great company that you have researched and feel is available at a fair value - invest it. Who cares if it is 9 shares or 18 shares? It's the dollar amount five to ten years from now that will be of the most interest.

Bruce:

You are right, over all, particularly in this discussion about the rah rah in stock splits. However, stock-splits give you the benefit of having more shares at lower prices. This means that should you need to or choose to liquidate some portion of your holdings, for whatever reason, you have more choices as to how many or how few shares you have to sell.

Once you are long in that great company, it would be nice to only have to liquidate a portion of your position to get out a certain amount of capital, rather than all of the position. For example, look at BRK.A, trading a $45,000 and some change. If I had bought in [one share] when it was at $17,000 (I really thought about it!), and now needed to get $10,000 of the money out, I'd have to sell my one share. Huge tax consequence by the way, and I'm out of the stock. But if it had split 2-1, twice, I only have to liquidate one share to get the 10K, have less tax consequence, and would still have a solid position in the company (that's relative to me, what with only 3 shares, of course ;->).

I agree with what you said about the psychology and misunderstandings of stock splits. This is in a different vein than what you said, and a serious benefit to stock splits.

Cheers,

Greg (still reading the book due to life's happenings)
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I think it would be fair to say that BRK.A and .B are both unique situations in terms of not splitting. I wouldn't apply that to the overall situation of the equities we talk about in the gorilla game.

Unless of course, we're talking about Apple. They don't ever seem to split - do they? <ggg> I wouldn't be surprised if the board awards Apple their first stock split this year since 1987. However, that's an entire off topic issue outside of gorilla gaming.

BB
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I appologize if I make a comment that someone already has before about this subject (I tried to read the whole thread but I am having intermitent internet connection problems....)

There is one benefit of a stock split that occurs for all investors but for the most part it is applicable to smaller retail investors...

If the current stock price is $200 and I have $4500 to invest the most I can buy is 22 shares (assume no commission for arguments sake). However, if the stock splits tomorrow and I wait for the split then I can buy 45. The pre-split half share is not available to me until the stock split occurs (assuming this is not a DRP account...)

Thanks,

Darren
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