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Read some Matt Levine, he's way more articulate and makes finance quite fun. But if I were to take a stab at it: The market has been so weird recently that sto

Read some Matt Levine, he's way more articulate and makes finance quite fun. But if I were to take a stab at it: The market has been so weird recently that stock splits - which according to previous theoretical belief do not create shareholder value - have in fact increased the share price for extended periods. So issuing stock for whatever reason (high price, poison pill) could be seen as shareholder maximizing. One could say diluting the stock so that a particular personality cannot buy the whole company could be shareholder maximizing as it would entrench ESG held values -- emboldening new shareholders to purchase the stock (saving the stock price). And point of information, by diluting rather than selling already owned shares, control is not ceded to the potential acquirer -- unless the potential acquirer doesn't care about the poison pill and will pay the premium for the new issue as well. This is quite fun to watch.

atmosx 5y ago
Matt is awesome. Super-smart guy, I love his perspective although I must admit I rarely read his newsletter nowadays.
eqmvii 5y ago
IMO, Matt Levine is mostly writing with his tongue firmly in his cheek when he suggests stock splits and meme stock antics are Rational Things Boards Should Do For Value. Excellent source for financial news though, I agree!
and-not-drew 5y ago
> The market has been so weird recently that stock splits - which according to previous theoretical belief do not create shareholder value - have in fact increased the share price for extended periods You're right that theoretically, they shouldn't create value, but I think even back to the 80s and 90s it's been shown that companies that go through a split tend to out perform the market for years after the split. The main reason isn't that the split creates value, but rather that companies who go though a stock split are usually successful and already on a trajectory to beat the market, split or not.
- hackernewds 5y ago
  So that selection bias seems to project that buying before a share split is actually not an educated+good decision
  - and-not-drew 5y ago
    I think it still is. I'm going to try to find a source, but I saw an analysis where they measured from a year before the split, the day the split was announced, and the day the split was executed all until one year after the split was executed and the returns on all of them beat the market as a whole. That being said, holding before the announcement performed the best.
    - Majromax 5y ago
      > I'm going to try to find a source, but I saw an analysis where they measured from a year before the split, There's a bit of time travel / survivor bias with this one. A company that has not beaten the market is much less likely to split its stock. In other words, if I know nothing other than that a company is splitting its stock, I can reasonably guess that it's shown good returns in recent history.
      - and-not-drew 5y ago
        Yeah, that was their whole point. Stock splits don't cause better returns, but the stocks with the best returns are more likely to split.
- JumpCrisscross 5y ago
  > even back to the 80s and 90s it's been shown that companies that go through a split tend to out perform the market for years after the split Going back to the late 60s [1]. [1] https://www.researchgate.net/profile/Hemang-Desai-2/publication/24103263_Long-Run_Common_Stock_Returns_Following_Stock_Splits_and_Reverse_Splits/links/09e415134b26959673000000/Long-Run-Common-Stock-Returns-Following-Stock-Splits-and-Reverse-Splits.pdf https://www.researchgate.net/profile/Hemang-Desai-2/publicat...
sjg007 5y ago
I agree stock splits broaden your investor base because you are now more affordable. It's psychological magic.
99_00 5y ago
There is no reason to think that issuing more shares would have the same effect as stock splitting because they are very different things.
atsmyles 5y ago
Stock splitting isn't dilution. It is the equivalent of breaking a $10 bill into 2 $5 dollar bills. Dilution is just printing more $10 bills aka inflation.
- anonymouse008 5y ago
  Though that may be the technical definition, I consider any increase in float or number of votes a diluting event

atmosx 5y ago

Matt is awesome. Super-smart guy, I love his perspective although I must admit I rarely read his newsletter nowadays.

eqmvii 5y ago

IMO, Matt Levine is mostly writing with his tongue firmly in his cheek when he suggests stock splits and meme stock antics are Rational Things Boards Should Do For Value. Excellent source for financial news though, I agree!

and-not-drew 5y ago

> The market has been so weird recently that stock splits - which according to previous theoretical belief do not create shareholder value - have in fact increased the share price for extended periods You're right that theoretically, they shouldn't create value, but I think even back to the 80s and 90s it's been shown that companies that go through a split tend to out perform the market for years after the split. The main reason isn't that the split creates value, but rather that companies who go though a stock split are usually successful and already on a trajectory to beat the market, split or not.

hackernewds 5y ago
So that selection bias seems to project that buying before a share split is actually not an educated+good decision
- and-not-drew 5y ago
  I think it still is. I'm going to try to find a source, but I saw an analysis where they measured from a year before the split, the day the split was announced, and the day the split was executed all until one year after the split was executed and the returns on all of them beat the market as a whole. That being said, holding before the announcement performed the best.
  - Majromax 5y ago
    > I'm going to try to find a source, but I saw an analysis where they measured from a year before the split, There's a bit of time travel / survivor bias with this one. A company that has not beaten the market is much less likely to split its stock. In other words, if I know nothing other than that a company is splitting its stock, I can reasonably guess that it's shown good returns in recent history.
    - and-not-drew 5y ago
      Yeah, that was their whole point. Stock splits don't cause better returns, but the stocks with the best returns are more likely to split.
JumpCrisscross 5y ago
> even back to the 80s and 90s it's been shown that companies that go through a split tend to out perform the market for years after the split Going back to the late 60s [1]. [1] https://www.researchgate.net/profile/Hemang-Desai-2/publication/24103263_Long-Run_Common_Stock_Returns_Following_Stock_Splits_and_Reverse_Splits/links/09e415134b26959673000000/Long-Run-Common-Stock-Returns-Following-Stock-Splits-and-Reverse-Splits.pdf https://www.researchgate.net/profile/Hemang-Desai-2/publicat...

sjg007 5y ago

I agree stock splits broaden your investor base because you are now more affordable. It's psychological magic.

99_00 5y ago

There is no reason to think that issuing more shares would have the same effect as stock splitting because they are very different things.

atsmyles 5y ago

Stock splitting isn't dilution. It is the equivalent of breaking a $10 bill into 2 $5 dollar bills. Dilution is just printing more $10 bills aka inflation.

anonymouse008 5y ago
Though that may be the technical definition, I consider any increase in float or number of votes a diluting event