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The Upshot on Apple’s Stock Split

Neil Irwin, writing for the NYT’s new sub-site, The Upshot:

But there’s another way of looking at it. Warren Buffett, the legendary investor, has avoided splitting shares of his Berkshire Hathaway so resolutely that each one now trades at a whopping $190,800 per Class A share. (He has bowed to practicality — and the fact that most people can’t invest nearly $200,000 for a single share of a stock — by introducing Class B shares that now go for a more reasonable $127 each).

Mr. Buffett’s logic has been that trying to game the market by doing stock splits attracts the wrong type of trader: people looking to trade in and out of a stock, rather than buy and hold it as a long-term investment. Interestingly, his logic for not splitting Berkshire stock for all these years matches precisely the findings of Mr. Dhar and his colleagues. It’s just that Mr. Buffett would prefer not to have that extra liquidity in Berkshire stock if it means dealing with shareholders who are looking for a short-term score.

With its split decision, then, Apple is effectively choosing its own shareholders — and not the ones who are most likely to stick with the company when it encounters bad times.

I’m curious too, why Apple chose a 7-for-1 split. As per Apple’s own FAQ, the company’s three previous stock splits were all 2-for-1.

Matt Yglesias speculates that one factor might be Apple’s desire to be part of the Dow Jones Industrial Average.

Update: From an email from DF reader ET:

Neil Irwin claims Apple’s move will attract the wrong crowd, but by almost every metric Apple doesn’t seem to be properly valued: so is that the “right” crowd? Who needs enemies when you have friends like that!

Great point.

Wednesday, 23 April 2014