Stock Splits: More Shares, But Not More Money!

Stock splits often excite investors, but they're not a path to instant wealth. A recent example is Super Micro Computer’s 10-for-1 stock split, which reduced its price from $416 to $41.60, giving shareholders 10 shares for each one they owned. While it may seem like a gain, the overall value of an investor’s holdings remains unchanged—more shares, but the same total investment.

Stock splits increase share quantity and lower price, but they don’t impact the company’s value or ownership stake. Companies typically split their stock to make shares more accessible to smaller investors and increase liquidity. For stocks with options, like Super Micro, splits also make contracts cheaper and markets tighter.

While splits can generate short-term excitement and a temporary price boost, they don't guarantee long-term gains. Apple’s 4-for-1 split in 2020 initially led to a price jump, but a year later, its return was 31%, below its average. Stock splits don’t change the fundamentals and aren’t a guaranteed way to make big money.