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Tesla 5-1 Stock Split
- Xcelerate 6y agoI don’t really understand stock splits. Is the only point to allow people to buy shares who could previously not buy because one share was too expensive? If so, why not just introduce fractional shares into the stock market with some fixed point number of decimal places? Or just keep track of ownership fraction (e.g. 0.0043% of the company)?
- 0xRCA 6y agoYes, and also finer grained control in general even for larger portfolios. Almost like increasing the resolution.
- bob1029 6y agoFractional shares are already a thing on many brokerage platforms.
- dpc_pw 6y agoAlso makes the perception of the stock being cheaper. I can't tell you how many times I heard someone say company X stock is cheaper than company Y becausetthey compare nominal price.
- StickyRibbs 6y agoStock splits can also be used for companies with values too low (A reverse split) . These companies split to increase the value of stocks in order to prevent delisting from exchanges.
- abfan1127 6y agowouldn't a split lower the value of the share price, making it closer to a "penny stock"?
- chrishas35 6y agoIt's commonly called a reverse split.
- jedberg 6y agoThat's a reverse split. Take the price ie from 10 cents to $1 by doing a 1 for 10 reverse split.
- JoshTko 6y agoIt's also generally considered a positive signal, that management is confident that nothing is going materially, negatively impact the stock price moving forward.
- mehrdada 6y agoOne thing it can impact is derivatives trading. A standard option contract controls 100 shares, which can be quite a large amount of $ if each individual share is priced highly (likewise affects the effective granularity of the common option strike prices in the market) Update: For something like TSLA which may have some psychological "Bitcoin-like" speculation going on among retail investors, I suppose the big number could reduce the desire to buy since "it can't go much higher" in some people's head, I guess.
- oh_sigh 6y agoIs there any reason beyond legacy that option contracts come in 100 share bundles?
- mehrdada 6y agoYou have to standardize on some common granularity for strikes/expiration dates so that each symbol has sufficient volume so that the market would not get too sparse. The theory does not require it, but when you are building an exchange, I suppose that'd be of a practical concern to you. You want interchangeability in derivative contracts and don't want each individual contract to be a snowflake. There are "mini" options that control 10 shares, for example, but they usually have higher bid-ask spread reflecting the higher cost of pricing accurately/transaction fee/lower liquidity.
- km3r 6y agoWouldn't make more sense to make contracts that control 1 share so that sparseness is minimized?
- betterunix2 6y agoYou would have contracts trading for less than a dollar, which would make the system a lot less efficient (higher transaction fees etc.), not to mention raising the computational cost of matching contracts when they are exercised (there would be far more contracts to deal with).
- trianglem 6y agoI think I prefer stock splits over dealing with fractional shares.
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- abfan1127 6y agothere was a time when you couldn't buy fractions of a share. Then it made sense to keep shares "lower" for smaller increments of share purchases. But now, most exchanges that I'm aware of allow fractional share purchases. Fractional share ownership may affect voting rights. I too would like to know "why" Tesla would opt for this... seems like they have more important things to do.
- arthurcolle 6y agoThe exchanges don't allow it, the brokers do.
- rich_sasha 6y agoThere are weird incentives for this. In US the tick size for any stock is always $0.01. So a stock with a price of say $1 has a minimum bid ask spread of 1%, which is a lot. On the contrary, if one share is too expensive, it limits liquidity in a stock. This is usually bad, though Berkshire Hathaway voting shares are deliberately kept expensive to stave off speculators. This then get meta-player. A split suggests the company expects a price increase, and vice versa (reverse splits area thing too).
- deleted 6y ago[deleted]
- esrauch 6y agoIt seems very strange; can a share not be worth less than 1 cent, or can it for ask but not bid?
- cynix 6y agoIt can be "worth" less than 1 cent. That simply means if you put in an offer at 1 cent, nobody will buy it, because they think it's worth less.
- esrauch 6y agoI meant if the bid-ask spread must be minimum 1 cent, then is it true that bid can't be lower than 1 cent as long as ask is semipositive?
- quickthrowman 6y agoTo entice retail investors to dump money in, brokered by Robinhood, one share at a time (in TSLAs case) I’m on the fence about TSLA, their value is based on their perceived lead on autonomous driving, which is questionable. Their accounting practices are a bit shady as well. I’m not looking forward to it’s inclusion to the S&P 500.
- deleted 6y ago[deleted]
- templaedhel 6y agoMatt Levine (as usual) has some good explanations for the value (or lack thereof) of stock splits, as well as some historical context, as seen via the lens of the recent Apple split: https://www.bloomberg.com/opinion/articles/2020-07-31/apple-stock-will-get-cheaper https://www.bloomberg.com/opinion/articles/2020-07-31/apple-... (Bloomberg has a pretty aggressive paywall, but usually a new incognito tab will bypass it). "A company should be a thing, and people should be able to own a portion of its equity, and the portion that each person owned would be expressed as an arbitrarily precise percentage of the total...The “stock price” would be what we now call the “market cap”: The market would place a value of $X on the company as a whole, and if I wanted to buy another 0.01429% I would pay 0.01429% of $X.... The traditional, 19th-century answer to how many shares a company should have was that stocks should have a normal price, they should cost like $40 to $100...This was so standard that, when Charles Dow created a stock index in 1884, he just averaged the dollar stock prices of a bunch of stocks...because the stocks had normal prices. There is an argument that high-priced stocks reduce liquidity because traders have less incentive to post quotes. It is good for a stock to trade at a bid/ask spread of a couple of “ticks,” the minimum price increment for trading. If a stock is worth $50 and trades at a bid/ask spread of $49.99/$50.01, a trader who posts a bid to buy at $49.99 will be able to buy from anyone who wants to sell immediately. If it’s worth $500 and trades at $499.90/$500.10, a trader who posts a bid to buy at $499.90 might lose out to a trader who bids $499.91. You can’t reliably earn a “normal” spread by trading the stock, so your incentive to provide liquidity is lower. Nasdaq published a paper arguing this point At the time of Apple’s last split, in 2014, one popular explanation was that Apple was trying to get into the Dow Jones Industrial Average, which is still price-weighted and so still has an old-fashioned fondness for normal-priced stocks, but that worked and now it’s in the Dow so that’s no reason to split again"
- betterunix2 6y agoLiquidity rules are the main reason. Even Berkshire Hathaway had to give in and create the Class B shares in response to pressure from institutional investors constrained by liquidity requirements. Brokerages are also less willing to allow margin trading on equities with low liquidity because of the risk that a customer will be unable to sell their assets to cover margin calls. As for fractional shares, keep in mind that these are a creation of brokerages, they are not universally available, and they create complications with shareholder rights (e.g. voting).
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- sfblah 6y agoDoes anybody else share my sort of shell-shock WRT Tesla? I'm one of those who thinks its stock (and probably all the big tech names) are in a bubble. But whenever I say that I get shouted down, downvoted, told I'm an idiot, etc. I'm hoping this comment is vanilla enough to be safe... just curious if others have had the same experience. To be clear: I'm not interested in debating the value of Tesla. I'm curious if others have the same emotional reaction at this point. That's it. If you think Tesla is worth $1T, good. Fine by me. I don't want to debate it or be told I'm a piece of garbage.
- kmfrk 6y agoI mean, even Elon Musk seems to agree with you based on his tweets.
- o-__-o 6y agoIf they can successfully enable fully automated self driving cars, then I think the value is entirely justified. See FaceBook. Disclaimer: I bought Tesla calls today and now assume I’m rich so your opinion may differ
- jeanvalmarc 6y agoNarrator: they can't.
- sfblah 6y agoWell, to be fair, I hate driving. So if they do, I'll buy one. Simple as that. I'm waiting!
- nine_k 6y agoI bet on self-driving trucks instead. They can go like 95% of the way via highways driverless, only accepting a driver to drive it through a city to a loading ramp, and maybe to a pump midway a very long trip. Drivers will not disappear soon but will provide local service. Having a driverless car which can navigate through a city would be great, but it is a much more complicated problem to solve.
- gzu 6y agoSpeaking of splits, I love how Apple’s stock split justification is: “We want Apple stock to be more accessible to a broader base of investors.” https://investor.apple.com/faq/default.aspx https://investor.apple.com/faq/default.aspx Yet it’s one of the top stocks held on Robinhood (#3 at 700,000 users) https://www.robintrack.net/symbol/AAPL https://www.robintrack.net/symbol/AAPL
- Areading314 6y agoIt's probably one of the top stocks held on any platform
- imajoo 6y agoThey have 4.2B shares outstanding with 64% being held by institutions. 700k people owning shares is a drop in the bucket. https://www.nasdaq.com/market-activity/stocks/aapl/institutional-holdings https://www.nasdaq.com/market-activity/stocks/aapl/instituti...
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- retzkek 6y agoRobinhood lets users buy fractional shares [1]. What's the average and median share holding per user? 1. https://robinhood.com/us/en/support/articles/fractional-shares/ https://robinhood.com/us/en/support/articles/fractional-shar...
- valuearb 6y ago“Accessibility” is always a bogus reason nowadays. Stock commissions are dirt cheap so there is little reason to buy in lot sizes anymore. If you have $320,000 in your account you can buy a single share of Berkshire Hathaway for less than a $10 commission. Stock splits are just a low grade attempt to pump up the stock price.
- betterunix2 6y agoAccessibility does not just refer to retail investors, it also refers to institutional investors who are constrained by liquidity rules; this is why Berkshire Hathaway created its class B shares.
- firekvz 6y agoHope you guys had some tesla calls :p
- dripton 6y agoMeh. Total non-event. Once upon a time I hated splits because they made record-keeping more complicated, but the online brokers do a good job of tracking basis across splits now. Once upon a time there was a real reason to do splits to enable easier purchases, but the online brokers allow fractional shares now. So, just not excited either way about splits anymore.
- riffraff 6y agoMatt Levine made me notice that there's still an effect of stock splits on making options more accessible i.e. there are brokers for fractional shares, but not options on fractional shares/fractional options. I am pretty sure this is irrelevant, but it's interesting.
- hmate9 6y agoTSLA stock is up over 7% after hours now. ~$15 billion of "value" created out of thin air. Sounds ridiculous.
- webXL 6y agoAbout $6 trillion was "created out of thin air" in the S&P 500 since mid March. But don't confuse value with output or wealth. The market is forward looking and valuations are pretty unstable long term.
- aeternum 6y agoEverything is relative, we're printing a lot of money right now, possibly for the right reasons. In general though those valuation probably do make sense in a world where money is plentiful.
- nradov 6y agoThe whole notion of individual shares with prices is legacy baggage from decades ago when trading was done with paper stock certificates. What really matters is the percentage of the company you own, regardless of how that percentage is sliced into units. Some retail brokerages already offer fractional share tracing so for those investors a stock split is mostly irrelevant.
- nine_k 6y agoA more informative link [1], also on sec.gov, explaining the nature of the operation, says: PALO ALTO, Calif., August 11, 2020 – Tesla, Inc. (“Tesla”) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors. Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020. [1]: https://www.sec.gov/Archives/edgar/data/1318605/000156459020039353/tsla-ex991_6.htm https://www.sec.gov/Archives/edgar/data/1318605/000156459020...
- caiobegotti 6y agoFor reference, here's a short amusing thread about the original Tesla IPO (even replied by Musk himself): https://twitter.com/Mark_Goldberg_/status/1292818184588886016 https://twitter.com/Mark_Goldberg_/status/129281818458888601...