Stock splits
If a stock's price increases dramatically,
the issuing company may split the stock to bring the price per
share down to a level that stimulates more trading. For example,
a stock selling at $100 a share may be split 2-for-1, doubling
the number of existing shares and cutting the price in half.
The
split doesn't change the value of your investment, at least
initially. If you had 100 shares when the price was $100 a share,
you'll have 200 shares worth $50 a share after the split.
Either way, that's $10,000. But if the price per share moves
back toward the pre-split price, as it may do, your investment
will increase in value. For example, if the price goes up to $75
a share, your stock will be worth $15,000, a 50% increase.
Investors who hold a stock over many years,
through a number of splits, may end up with a substantial investment
even if the price per share drops for a time.
A stock may be split 2-for-1, 3-for-1, or
even 10-for-1, if the company wishes, though 2-for-1 is the most
common.
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