FEAR & GREED | Business NewsWelcome to Ask Fear and Greed. Well, we answer questions about business, investing, economics, politics, and more. I'm Michael Thompson and hello Sean Ale.
Hello Michael.
Okay, Sean, here's a question for you. Obviously, it's called ask for a agreed. If there wasn't a question, it would be a very short and very dull episode. What is the point of a stock split? And how does it work?
Right? So, stock splits are reasonably easy. So it's when a company splits it's one share into numerous shares. So you might have a ten for one, a five for one. So if a company's share price is one hundred dollars and you have a ten for one stock split, the share price they put ten times so many shares out there, and each one is worth ten dollars rather than one hundred dollars, and the value of the company doesn't change at all, but the number of shares do. Now, why do you do it? So it's kind of the opposite to a share buy back kind.
But so say I own one hundred dollars in shares in the company. I say I own one one hundred dollars share. Now I own ten dollars shares.
That's exactly right. So a bunch of reasons stocks can get really expensive. I mean Berkshire halfway share prices in the tens of thousands of dollars, right, But a lot of companies Apple's been a great example over the years. Doesn't happen so much in Australia anymore. You want retail investors to be buying in so if they're buying a ten dollars share rather than one hundred dollars share, there's just this sense that buying the I spend a thousand bucks again buy one hundred chairs in the company is better than just buying ten chairs. So it becomes more accessible, more liquid, easier to sell. When the share price is less, there is no change in value. I mentioned in Australia. So pro Medicus, the medical imaging company in Australia, its share price has gone through the roof. There's always talk that that should do a share split, but really in Australia we haven't had a huge amount of it. Some companies over time have, like I could ever say the words Chipotal, Chipotal shop part of the in the US, like they did a fifty for one split, so suddenly your one share, you get fifty shares. Wow, okay, apples Apples split. I think it's five times in its history.
That's why it's also hard to you know, when you occasionally want to work out, if you invested in such and such thirty years ago, how much it's going to be worth now, It's really hard to do that when you have then kind of five or six or a dozen share splits during that period to try and calculate what the value is, because all of a sudden it spears off in all of these different directions.
Yeah, yeah, so yeah, that's exactly right. And basically Australian companies don't do it. I'm trying to think the last major company to do a stock split and I can't. Can you google that for me? Michael? You're but I mean, I can't remember. It's much more relevant or regular in the US. Nvidia has done it now that I think of it. Nvidia had Well has done it recently because his sheer price went through the roof. Well, I'm looking at you know, have you got it?
Yes? I do, I do, I do. The CSL has done it a long time ago.
Yes, Cochlear right as well, again a fair while ago though, yeah.
I look, you didn't say that you wanted one last week.
No, No, Australian companies don't tend to do it, and in a way like it doesn't change the value of it. It's just liquidity, accessibility, particularly if they're mum and Dad's stock.
Okay, that's interesting, that's vaguely interesting. Well okay, if I had to score that out of fifty for interest, I would say about a good forty one forty two with you. That's not just a PhD that it certainly as an HD.
Well, no, it's a D, that's a section. Yeah, all right.
Maybe that's why we struggle to figure out that.
One thing that is really interesting is that Warren Buffett has never allowed a stock split of Berkshire hathways A shares, and that's why.
They're worth I don't know what the hundreds of thousands of dollars those ones.
Yeah, yeah, yeah, And you would think that that's one that should have because this price has just gone up so much. Weren't we saying over the sixty years it's like averaging twenty percent, yeah, more than ten percent.
And that's why then when you hear about his charitable things and when you see that he's donated kind of a thousand shares to an organization like, oh, that's not actually so much. But when those shares are worth hundreds of thousands of dollars each, right, it suddenly becomes an incredible donation.
Yeah, yeah, yeah, I mean phenomenal.
All right, you know what EI think. You just bumped that up from a forty one to a forty five out of the interest scale.
Excellent, good, good job.
All right, thank you, Thanks Michael, And remember, if you have your own question that you would like us to answer, you can send it on through via at the website Fear and Greed dot com todau, or head along to Facebook, Instagram, LinkedIn any of the social media platforms. Send us a message, we will get it and we will answer it. I'm Michael Thompson and this is ask Fear and Greed
