by Anura Guruge
With over 30 years of investing behind me I am now savvy enough to know that stock splits — or even reverse stock splits — don’t change the essential economic or operational dynamics of the underlying company. Splits are essentially artificial and contrived mechanisms to rejig the price of a stock into a more ‘acceptable’ trading range.
I, as a proud and v. happy Amazon shareholder, expect AMZN to be approaching $800 by March 2016 — and my very active, even frenzied, option trading on AMZN reflects that. SMILE.
And for the last few weeks I have realized, innately, that an AMZN stock split could be likely, as was the case with APPL and NFLX, when the price gets into the $700 range.
But a AMZN stock split does NOT fill me with joy. Yes, even a 3-for-1 split would ensure that I would be able to claim that I own thousands of AMZN shares — and yes, that would further increase my stock option trading options (if you know what I mean). SMILE.
But, after years of pondering, the split-issue I finally have a concrete answer as to why I do NOT like splits of EXPENSIVE stock — like AMZN.
It brings in the WRONG CLASS of investor!
Sorry. It is not a question of being snobbish, it is a matter of safeguarding one’s assets.
At $600 – $700 you can keep away the casual, uninformed (if not totally clueless) retail investor. And that means you don’t get silly gyrations.
At $70 everybody and their dog thinks that they can own 100 shares — and then we get into the knee-jerk, totally irrational trading.
IF you study the NFLX chart, carefully, you will see that the split didn’t do the serious, long-term investors, such as I, any favors — though it made option trading more exciting.
I am fairly resigned to the fact that AMZN will most likely split in 2016. Yes, I will play options like crazy around the split since there will always be the totally meaningless SPIKE in price ahead of and just after the split. Well, you can’t win them all.