Is it that high these days? It's always been up there, but that's damn
high.
I must have been misusing the term liquidity. If liquidity is a measure
of the ease with which non-cash assets may be converted to cash, then I
agree with you. I think I was defining it in a non-standard way, that is
liquidity is a measure of cash assets.
>
> I admit that there are two coupled forces at work here.
>
> 1. a lower price allows "the little guy" to get into the stock, directly
> driving up the price, and
>
> 2. a lower price makes it easier to trade the stock.
>
> I also agree that stock splits tend to be a sign that the company is
> worth investing in, but I don't thing that this has much to do with the
> increase in price after a split. I say this for two reasons:
>
> 1. If the company is worth buying right after the split, it was worth
> buying right before, and
But that may not have been apparent to the investor until after the
split. So he or she buys the stock only afterwards.
> 2. In my experience, the price of a split stock rises more *after* the
> split, not between the announcement of the impending split and the
> split date. If the reason for the run-up was that the split itself
> brought attention to the worth of the company, I contend that one
> would see more of a run-up after the announcement and before the
> actual split.
This may be true. However one must look to the time-lag involved. Some
of my mother's stocks have split without her ever knowing it would
happen. If this is a function of her imperfect information, then I must
also ask how many investors as reasonably well-informed as my mother had
no idea the stock would split? This may or may not have an effect on
price increase before the split.
Furthermore, an announcement of an impending stock split is, as we seem
to agree, akin to an announcement of a projected good fiscal year.
Companies make positive projections all the time. However, they are only
required by law to be honest in their propectus. I don't necessarily
believe an announcement until I do some homework. That takes some time
(unless a broker feels like giving me some free info). A stock split is
evidence that the company is clearly confident about its future
earnings. I would choose to wait and see if it splits at all, and then
buy or hold (or even sell) as necessary. The risk to a company involved
in splitting without confidence seems in most cases too great to warrant
what would be an artificial jump in price after the split.
But I'm no expert on this.
>
> >Finally, investors are more likely to buy shares at a low or mid-range
> >price than a very high price. To keep the share price going up steadily,
> >the board should split when it can.
>
> Yes, indeed. Shares trade more readily when they are cheaper. When
> things trade more readily, they are relatively more liquid, yes?
Again, I think you're right given my confusion concerning the definition
of liquidity.
Interesting discussion,
Keith