Stock Split first timer. What do I look for....

First the details:
31, normally a mutual fund holder only, single. Only debt is a 1.97% car loan (not a lease).
My first and only stock purchase is Potash Corp. Ticker symbol POT but I own it in Canadian funds on the TSX. Was purchased thru my bank's discount brokerage. I purchased this stock at an average of $128 a share CDN and now it's over $200. I own 21 shares. It is not being held in retirement plan so appropriate taxes are owed for dividends or gains/losses.
So currently it's a $1600 gain which is equal to about my investment contributions over 2 months
Potash announced a 3-1 spilt to be done later on in May. Quite frankly Cdn large caps are expensive anyway so I understand the mechanics of the 3-1 to entice more buyers. They are increasing dividend to 80 cents a share from 60. I did not start a purchase plan for this stock for dividends as I have dividend mutual funds.
I am asking for other's experience from DIY investors what historically they found during a stock spilt of this order. What can I expect to the value of my 63 shares from a historical perspective say 6 months down the road. I'm asking for historical perspective from people who have had this happen, and I'm not seeking advice on what to do, although those suggestions might enhance the thread.
I had been debating about selling when it was $214 and using my gains to start an ETF portfolio then I read the news of this spilt.
Reply to
The Henchman
Stock splits had a bit more significance when trading in odd lots (quantities other than 100-share multiples) was difficult or costly. Those days are gone -- you said in your post that you were able to buy 21 shares and probably didn't think much about it not being an even 100.
It's a non-event...a share-accounting curiosity. If the company has a total value of $1 billion divided over 1 million shares, and splits 3-1 today, it should still be worth $1 billion tomorrow. Only now that's divided over 3 million shares, which drop in price accordingly. The company's total value shouldn't change, because the number of shares issued is arbitrary. The best that you can say about a split is that the price has probably risen (which attracts some investors who, for whatever reason, like to buy stocks that have already gone up) and the split gets some press attention, so maybe a few people take a look at the stock. These aren't strong-enough factors to drive pricing much though - IMO.
There have been numerous studies of price changes around stock splits and some of them suggest that on average, there is a temporary gain around the split date. I don't find those studies particularly useful when applied to an individual stock though, even if they're valid you'd need to buy every stock that splits to realize those excess gains (the effect isn't at all universal). The value of your investment is much more likely to be driven by the price of potash than by trading effects from this split.
-Tad
Reply to
Tad Borek
In article ,
That is an unanswerable question. It is like asking what the score will be in next year in the Superbowl. We have no way to know. It could go way up, it could go way down, it could stay the same, or it could wander around a bit. That is the whole trick of investing...you never know what is going to happen in the future.
-john-
Reply to
John A. Weeks III
"The Henchman" writes:
Splitting a stock doesn't make it cheaper. It makes the per-share price lower, but the financials - the price/earnings ratio, etc all stay precisely the same. If it was expensive (ie. overpriced) before, it's just as overpriced afterwards.
There's very little reason for stocks to split these days.
(Even Washington Post, currently going for $766/share is not really priced yet such that a small-scale investor couldn't buy in. The smallest investment would be $766, but anything smaller than that and the transaction costs eat you alive anyway).
Economically, nothing whatsoever. Financially, it's totally a non-event.
Practically, however, there have been some studies which show some short-term movement which relates to splits, but it's only a short-term thing and, frankly, not very important.
Do a google search on "stock split price movement".
You might as well ignore the split and, if you were planning on rebalancing, go ahead and do it.
Reply to
BreadWithSpam
If I recall those papers correctly, what they say is the stock tends to do well in the *lead up to the announcement of the split* and then not so, afterwards.
Implying that a split signals that things have been good for the company, but not that they will be good in the future.
Reply to
darkness39

. That is the whole trick of investing...you never
So in other words a stock spilt is just another day at the exchange and it shouldn't make any factor on portfolio rebalancing...
Reply to
The Henchman
In article ,
Right. It is the total value of the stock that matters. You never want to have more than about 5% invested in any one stock. It doesn't matter if that is 100 shares at $50 or 200 shares at $25.
-john-
Reply to
John A. Weeks III

While I would never use the occurence or possibility of a split as an evaluation criteria for an individual stock, this Forbes article indicates good performance afterwards:
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Actual checking of the academic research to see what it really says is an exercise left to the reader.
-Will
Reply to
Will Trice

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