Do Stock Splits ACTUALLY Boost Returns? What the Numbers Say
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- Опубліковано 19 тра 2024
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00:00 - Intro
01:36 - How Stock Splits Work
02:30 - Why People Think They Boost Returns
03:40 - Arguments Against the Idea
04:24 - My Analysis
05:52 - The Results (Effective Date)
07:31 - The Outliers
08:55 - The Results (Announcement Date)
10:15 - Large Cap Results
11:59 - Takeaways
13:03 - Sponsor
Some have been speculating that upcoming stock splits for big companies will be a source of outsized returns - is this reasonable? I did a small experiment to look into it.
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What happened to "price" of share if there is no buyer in a hypothetical situation?
I am a newbie, but for a long term investor wont the stock split be beneficial (assuming of course, he or she has invested in fairly good companies in a growth industry)?
Each time I'm about to say "but he hasn't taken account of ___" he then goes and takes account of it lol. Great UA-camr.
It also has to do with dip buyers stepping in to buy, automated ones with bad data correction algos.
Thank you for such an in-depth video!
Very good and very important video. Thank you for your work!
Binging this channel Memorial day!
Great analysis!
Amazing video!
What's needed? Liquid cash. Everyone only has credit. If you have stacks of cash, you can capitalize on everyone's credit. A recession as bad it can be, provides good buying opportunities in the markets if you’re careful and it can also create volatility giving great short time buy and sell opportunities too. This is not financial advise but get buying.
Cash can be king , but it depends on how much you have. I.E- if you have 300,000 cash when the house market crash occurs you will have a LOT more opportunities VS many others especially when people get foreclosed.
When the stock market rebounds, many investors may come to regret not investing in the red today. It's possible that this pricing will never be seen again. If you have a fantastic vision for it, there is always opportunity in the midst of chaos.
@@thebullsofwallstreet8436 that's impressive! I could really use the xpertise of this manager for my dwindling portfolio. how can i get in-touch with person guiding you?
This recommendation is coming at the right time because i am literally grasping for straws atm! I looked her--up online and scheduled a phone call with her.
Mwahahahaha scam bots' main comment has been deleted. This brings me much more joy than I'd like to admit
I think theres one factor you missed out when it comes to stock splits which is hype. When people(retail) think of investing, they are thinking of names like Apple, Tesla, Amazon and Google. The brand reputation itself is a leading factor for the price action. Its very hard to quantify hype so its also difficult to conduct any analytical studies on it. Overall its still a very good video 👍
Thanks for making this 👍🏻
Good job
Time for a video on the Luna tank?
Do you have the dataset published anywhere? I am curious how it would compare to the S&P 500 if calls were sold against the underlying on a multi year basis.
wait a minute? do stock splits improve company performance, or do companies with good performance tend to split their stock?
I really like your videos, but " from 2020 - 2022..." is really not a good set of data.
The past 15 years money has been thrown at the markets. Comparison to a pumped SP500 is kind of lame.
Let's see how stock splits perform in a more difficult decade.
Great work and you can certainly conclude that they don't have much of an impact now. What about for long term investors focusing on 5-10 year horizons? Also right now we're in a bear market or at least a major correction.
Oh saw your question after I asked something similar!
Do stock Bonuses dilute the price of the stock?
Speaking of gamespot. Can you do a video on where GameStop story is at currently?
Lead to better performance? No by itself. A result of good performance? More likely. If good performance continues, then the split likely had nothing to do with it...unless you're TSLA.
From my experience they usually go down for a bit. CIBC is going to split, I'm a long term holder, I'll do fine.
Beautiful spreadsheets man.
Love this data!
What if you're selling a covered call on a stock that splits?
I always wonder if people that push this idea ever think about reverse splits, I looked into a few recent stock reverse splits (15 or so) and none of them lead to a significant DECLINE in stock price. I completely agree with the fractional shares point, you can already just invest $20 into amazon regardless of the current strike. Great video! Keep it up!
Thanks for the hard work, will there be a episode on fixed income market? Investment grade, high yield and government bond? Thanks!!!!!!
Ah yes, the old people investments. fking love it
What does investment-grade even mean? Who is advertising "non-investment-grade" bonds lmao
@@GT-tj1qg Investment grade basically means safe/very low risk and volatility.
Whereas, Non-investment grade are often advertised as up-and-coming like tech companies, or bonds that have higher risks and USUALLY have higher returns, aka Non-investment grade are less safe and more towards fun and exciting bonds, you might also want to invest in Non-investment bonds simply due to your love for a particular company or industry.
It would be interesting to analyze whether the split resulted in an actual increase in trading volume, factoring in the increased number of shares.
How can they underperform the market by around 12% for a year if their return for a year is around 12%? Doesn't that imply the market return was 24% a year on average? What am I missing
OPTIONS
Great video! It would be interesting to see a "Part 2" of sorts on reverse stock splits. People's online comments seem to have more conviction about those having a negative impact on share price than splits having a positive impact on share price.
No but more people could afford $100 instead of $2000 a stock so more demand. My brokers do not allow to buy fraction of Googl.
Are all split stocks you analyze are over $2000. If some are just $100 or much less than $2000, I am afraid it is not apple to apple comparison since $100 stock before split is already very affordable.
I believe Googl will go up after split even split itself will not increase the intrinsic value.
stonks
What is the benefit to splitting a stock in the first place? If there is no impact to performance, why do it at all? Honest question.
Its to make the stock more accessible. Some brokers dont allow for fractional stock purchases, so buying a share of tesla at $5000 versus having it split twice and being able to purchase one share for $300 is a huge difference
Accessibility is the short answer; more people and groups being able to purchase smaller price stocks. More specifically; for a retail investor it's easier to buy 20 shares of different companies that add up to 20% of your mid-risk investments, than say one share of one company that's worth 15% of your mid-risk investments. Same goes for investment vehicles and funds that are used by most middle-class investors, a 401k or IRA etc doesn't want to put huge % of their funds into small numbers of shares in a small number of companies, they want to buy a lot of different shares across different sectors so they're considered to be more diversified.
who issues the stocks?
I'm a bitcoin expert I know our coins are fix in supply, what I have heard time understanding stocks is who issues them, is it manipulated unlike btc?
Going off the back of TikTok reactions I'd love to see you review and react to UA-camr Benjamin
Please do a review of Benjamin. Guy is hilarious
Benjamin is a god among men
So stock splits are just another specution, myth; people get fired up over an arbitrary company action that doesnt impact its fundamentals or market cap in any way, another speculative excuse to deploy in the casino
Ohh thank god you did this cause I was wondering if I should have bought some amazon stock before splits
Thank you for this video Mr. Bagel! Would you be willing and able to upload your spreadsheets/data?
Thanks for the video and doing the math, and data analysis!
Between that and STLA for Stellantis, you know that the ticker choice is not arbitrary
This definitely depends on the media value of a company. The outcome will vary greatly for say Tesla vs. Humana
I should get credit for my comment from the tiktok video
Not sure if you work out ,but your biceps are looking tight.
Great content💯
Could you please do a video about the pros and cons for stock lending?
Awesome!
I was going to sign up for the newsletter, but their IT people can't parse valid email addresses (non-standard, but VALID Top Level Domains are pretty fucking common at this point). They have no way to contact them about this issue either - making it doubly stupid.
I feel like some investment firm should hire you
You probably know this already but there are a lot of comments trying to scam people into investing with some fake Instagram investment thing. Just thought you should know so you can block them so people don’t get scammed
I agree. This has been going on for a long time. I bet they (content creators) are equally frustrated like us.
@@juandeag5550 yeah I imagine so. Ridiculous UA-cam can’t do anything about it.
Very nice video. I would love to hear your updated opinion and guesses regarding moass idea and upcoming split regarding GME
Definitely mostly has to do with more accessibility for people to access multiples of 100 for option trading. People want access to stocks they can sell covered calls on, for example.
Not all Stock Split works out but if a impending Stock Split is coupled with good news from that company or if that company has been doing relatively well then you can actually get some pretty good gains...
Cmg needs a stock split
no
Stock splits create no tangible value. It’s crazy how people “invest” in a company just because of a pending stock split
ahem GME ahem
Stock market... for investing? Hmmm, seems a little outdated doesn’t it?
I mean, not that I advocate it myself but, I don't think it's all that crazy for people whose trading strategy is purely driven by momentum. It's just a subset of technical analysis focusing on much shorter time-frames.
@@devilex121 technical analysis = astrology for investors
I wonder if when looking at reverse splits the overall deviations would also be similar. Perhaps the long term performance could be slightly lower since some companies in trouble usually do reverse splits?
Wouldn't stock splits be more important in Europe and Asia where fractional share investing isn't very common. In some places, it's even worse than that; for example, in Japan, I think you have to buy stocks in lots of 100, which makes many companies completely unaffordable for retail investors. I think that was the reason behind Nintendo's recent announcement of a stock split. The minimum investment in that company is around $44 000 if you buy in Japan.
Exactly my thinking. I believe this split will affect Nintendo stock positively.
In Taiwan, you have to buy stonks in lots of 1000. There are ways to buy stocks 1 by 1, but it's annoying.
That's right. I had to scrape the bottom of the barrel just to buy one alphabet stock and it made my portfolio more weighted into this position than I would have preferred (I'm from Europe).
You can buy fractional on some brokers also in UE.
However, why would you want to buy a part of a share that you don't own.
I wonder if 12mo excess return favors larger capital companies (ie >1B)
This is one respectable youtube channel! Thank you sir
Stonks.
More like "The GAIN Bagel", someone's been lifting!
Could you do a video on useful market indicators and the pros/cons to their usage?
If the stock split announcement is combined with a dividend increase or share buy-back announcement then you have an actual return to shareholders situation and the stock will then have a reason to increase in value. It is not the split - it is the return to shareholders that matters. Model that and you will see it in the numbers. Thanks for your great work.
I think it’s very logical that there is no excess return. The stock market doesn’t just consist of retail investors who get their news from TikTok. If this strategy would actually work, tiktokers would pretty much be the last people find out about it. It’s way more likely that quant funds, banks etc would find about this strategy way ahead of any retail investor and therefore erase any excess return.
The more people know about a working strategy the lower are the returns until they are completely erased
It did for NVIDIA last year.
What happened to the PRICE of share, if there is "no transactions" or "no buyers" for share in hypothetical situation? Expecting your answer. post this question for month u didn't reply
the price is whatever it was last traded at, if you're the one want to sell it, you have to lower the price to whatever attractive enough that someone wants to take it
Can't wait for the terra luna video I hope you're gonna make
In europe, fractional shares are not very common, so a split of expensive stocks brings more investors to the table.
Do a video on magic formuła Please!
So don’t Spilt up gang !
Its time again, all these videos everywhere.
If the argument is that stock splits improve accessibility, maybe tickers with an already low share price ought to be excluded?
Do you know any stock splits where the price was low already? Just curious. There is listing requirements for the NASDAQ and NYSE you know.
@@MartinA-mm8ng Both of the outliers mentioned in the video were examples of that. If you pause and look at the spreadsheet, there are some more. I don't know where the threshold for "low" is, but definitely multiple that were
There are already fractional shares
Fractional shares exist. Anyone can buy google and Amazon.
Buying because of a split is stupid.
@@Meowmeow.age.6 not in most European countries, they don't. It's largely, if not entirely a US thing.
They sure did with my TSLA!
Your sample size is too small. Also the median is a better value to avoid outliers' influence.
He explained how he took his sample. It's all of the stock splits of the last few years. He also explained why he took only the last few years and not, say, the last 20 years, and that's because the argument is that accessibility boosts the stock price. But accessibility isn't much of an issue any more since fractional shares are now widely available.
Also, he does list the median values and the standard deviation. So you can make a judgment on the reliability of the data.
The reason the sample size is so small it's because the population is so small. Stock splits are relatively rare.
@@alex2143 isn't it the opposite though. Fractional shares became more available in 2020, so he should take data before 2020 due to accessibility issues, which is more than a couple of years. Too small a size sample, and too much noise. Hard to draw any statistically significant conclusion.
@@alex2143 I know he listed median, but he constantly refers to the mean in the video.
@@allenscenery sure. But the actual return you get from building a portfolio based on a strategy focusing on stock splits is the average, not the median. It's well known that a small number of outliers drive the majority of returns. Using the median would give a distorted image of the actual returns you'd get.
@@alex2143 mean is not very useful especially skewed by a few outliers. In reality, your portfolio is more like a weighted average, but whatever.
Could be interesting to repeat the analysis but looking at daily trading volume instead.
Can anyone help me with the data extraction from the source. I would like to also do some analysis
What are the odds TikTok Finance influencers have ever even opened Excel let alone built a financial model?
The thing I dont understand about splits is that the company does not control the price of the stock, the investors just buy the stock at whatever price they want, so how does it just cut the price in a moments time. Also the stocks price history never shows an instant drop at the split time, do they adjust the price history to reflect the relative value?
Awesome breakdown. People would save so much more money if they'd lay off the tiktok crap and watch your videos. Nice work!
Isn't this just survivorship bias? e.g.:
* A company is good, so it performs well
* Because it performs well, stock price rises
* Price gets too high, so management decides to do a stock split
* Since nothing much changed, the company is still quite good, performs well and share price continues to rise
Upvote
For sure, but if that's true, you could still use that strategy for buying stocks. Not because splits boost the return, but because splits indicate a good company.
thats my take is well. academics call this "momentum". things that go up tend to continute to go up. there is no theoretical reason for this but its a well documented phenomena.
The main reason this reasoning doens't work is because past performance does not predict future performance.
@@someonesilence3731 Past returns does predict future performance. Look up "price momentum". It's a very well documented phenomena.
Love this topic, and your analysis! This could have been such an interesting research study for a University Corporate Finance class
I am not an investor. Actually, this whole affair is pretty new to me, so correct me if I'm wrong... But, wouldn't there be a more material return for the upcoming stock splits solely for the fact that now there are more buzz by UA-camrs or financial-hypers that may just get a lot of people convinced and help it become a self-fulfilled prophecy?
maybe, but in a very minor way and you'd need to pull out of the stock almost instantly before the market re-stabilizes to see any return.
Take this with a grain of salt because I generally don't daytrade.
Jeremy if what you’re saying is true that would mean stock splits would cause worse returns for buyers of the stock because the price would rise for no intrinsic reason thus causing you to overpay for your purchase
There's just as likely to be an equal amount of institutional shorts taking their money in the belief that stock splits have no material impact in a stock and thus these inflows lead to overpricing
Have to say, I'm loving the regular updates lately! Thanks for helping keep me from doing dumb things with my money.
Buying splitting stocks is just a quirky momentum strategy. Stocks split because they have appreciated.
Wouldn't a better comparable be against it's sector rather than the S&P 500 as a whole? For example, if it is was a bank that split, would it not be better to track it against other banks?
Backing your claims with data! what kind of black magic is this!!
Great video, keep up the good work.
In Taiwan, you have to buy stonks in lots of 1000. There are ways to buy stocks 1 by 1, but it's annoying.
7:12 This doesn't even address the fact that those companies doing a split are presumably doing so due to an outsized nominal value, making the population of companies even doing it a sample that is biased towards overperformers in the first place
that would actually tend to speak against stock split.
what about a stock split in the form of a dividend?
There's a theory that GOOG's split will allow its induction into the DJIA, due to the DJIA's peculiar price-weighted nature. Do you think that would be a reason for an expected price increase?
Plot twist. Grandpas DOW goes with Meta Platforms over Google.
They dont have fractional options do they?
What about the possibility of being added to the Dow Jones? That’s what I heard was the real reason people were going for google and Amazon
I think we can try to look at stock split from a company's view and find out of some of the causes are true or not? The likely reason a company wants to split a stock.
1. Finding it hard to get funding from big investors? Hence, they make it cheaper for retail investor so they can tap on retail investor for funding?
2. Finding it hard to maintain share price within a certain range? Maybe big investors don't see much value in the stock and are quick to sell off the share? Hence, there might be a need to cushion the drop in demand. Splitting the stock allows more demands from retail side, lessening the reliance on big investor?
1 banana = $1
2 bananas = $2.50
Fin-fluencers: "Sounds fair."
After all, linearity is for simpletons.
Hi Richard, can you please make a video about stock buybacks - how it works?
Congrats on 4 views
Sometimes we like to spend money/time on the companies we own shares of to support them. If someone can’t afford to pay $2000 for a share of Google they might be more inclined to buy Microsoft shares and switch to Bing!
I know it’s a stretch but it’s the only way a stock split can effect fundamentals.
If I split a plain bagel 2:1 ...
does it taste? better?
if not, I will start spreading the cream cheese on top instead! 🙃
I like stock splits because now I'll be able to sell covered calls on Alphabet and Amazon
If you do front run Amazon split. You would buy now and sell before the split.
Short after the split because then you can cover whenever you feel like you made enough money.
Amazon fair value is south of 1000 pre split. Which is over 50% upside potential gains.
So there you go. Make some money in the bear market.