Tesla 5-1 Stock Split • Hacker News Board

Re: Tesla 5-1 Stock Split

#11

Post by abfan1127 » Tue, Aug 11, 2020, 9:35 PM UTC

Xcelerate wrote: post #2

I don’t really understand stock splits. Is the only point to allow people to buy shares who could previously not buy because one share was too expensive? If so, why not just introduce fractional shares into the stock market with some fixed point number of decimal places? Or just keep track of ownership fraction (e.g. 0.0043% of the company)?

there was a time when you couldn't buy fractions of a share. Then it made sense to keep shares "lower" for smaller increments of share purchases. But now, most exchanges that I'm aware of allow fractional share purchases. Fractional share ownership may affect voting rights. I too would like to know "why" Tesla would opt for this... seems like they have more important things to do.

Re: Tesla 5-1 Stock Split

#12

Post by sfblah » Tue, Aug 11, 2020, 9:36 PM UTC

Does anybody else share my sort of shell-shock WRT Tesla? I'm one of those who thinks its stock (and probably all the big tech names) are in a bubble. But whenever I say that I get shouted down, downvoted, told I'm an idiot, etc. I'm hoping this comment is vanilla enough to be safe... just curious if others have had the same experience.

To be clear: I'm not interested in debating the value of Tesla. I'm curious if others have the same emotional reaction at this point. That's it. If you think Tesla is worth $1T, good. Fine by me. I don't want to debate it or be told I'm a piece of garbage.

Re: Tesla 5-1 Stock Split

#13

Post by abfan1127 » Tue, Aug 11, 2020, 9:37 PM UTC

StickyRibbs wrote: post #6

Xcelerate wrote: post #2

I don’t really understand stock splits. Is the only point to allow people to buy shares who could previously not buy because one share was too expensive? If so, why not just introduce fractional shares into the stock market with some fixed point number of decimal places? Or just keep track of ownership fraction (e.g. 0.0043% of the company)?

Stock splits can also be used for companies with values too low (A reverse split) . These companies split to increase the value of stocks in order to prevent delisting from exchanges.

wouldn't a split lower the value of the share price, making it closer to a "penny stock"?

Re: Tesla 5-1 Stock Split

#14

Post by gzu » Tue, Aug 11, 2020, 9:37 PM UTC

Speaking of splits, I love how Apple’s stock split justification is: “We want Apple stock to be more accessible to a broader base of investors.” https://investor.apple.com/faq/default.aspx

Yet it’s one of the top stocks held on Robinhood (#3 at 700,000 users)

https://www.robintrack.net/symbol/AAPL

Re: Tesla 5-1 Stock Split

#15

Post by jedberg » Tue, Aug 11, 2020, 9:37 PM UTC

StickyRibbs wrote: post #6

Xcelerate wrote: post #2

I don’t really understand stock splits. Is the only point to allow people to buy shares who could previously not buy because one share was too expensive? If so, why not just introduce fractional shares into the stock market with some fixed point number of decimal places? Or just keep track of ownership fraction (e.g. 0.0043% of the company)?

Stock splits can also be used for companies with values too low (A reverse split) . These companies split to increase the value of stocks in order to prevent delisting from exchanges.

That's a reverse split. Take the price ie from 10 cents to $1 by doing a 1 for 10 reverse split.

Re: Tesla 5-1 Stock Split

#16

Post by oh_sigh » Tue, Aug 11, 2020, 9:37 PM UTC

mehrdada wrote: post #8

Xcelerate wrote: post #2

I don’t really understand stock splits. Is the only point to allow people to buy shares who could previously not buy because one share was too expensive? If so, why not just introduce fractional shares into the stock market with some fixed point number of decimal places? Or just keep track of ownership fraction (e.g. 0.0043% of the company)?

One thing it can impact is derivatives trading. A standard option contract controls 100 shares, which can be quite a large amount of $ if each individual share is priced highly (likewise affects the effective granularity of the common option strike prices in the market) Update: For something like TSLA which may have some psychological "Bitcoin-like" speculation going on among retail investors, I suppose the big numbe…

Is there any reason beyond legacy that option contracts come in 100 share bundles?

Re: Tesla 5-1 Stock Split

#17

Post by kmfrk » Tue, Aug 11, 2020, 9:37 PM UTC

sfblah wrote: post #12

Does anybody else share my sort of shell-shock WRT Tesla? I'm one of those who thinks its stock (and probably all the big tech names) are in a bubble. But whenever I say that I get shouted down, downvoted, told I'm an idiot, etc. I'm hoping this comment is vanilla enough to be safe... just curious if others have had the same experience. To be clear: I'm not interested in debating the value of Tesla. I'm curious if ot…

I mean, even Elon Musk seems to agree with you based on his tweets.

Re: Tesla 5-1 Stock Split

#18

Post by o-__-o » Tue, Aug 11, 2020, 9:38 PM UTC

sfblah wrote: post #12

Does anybody else share my sort of shell-shock WRT Tesla? I'm one of those who thinks its stock (and probably all the big tech names) are in a bubble. But whenever I say that I get shouted down, downvoted, told I'm an idiot, etc. I'm hoping this comment is vanilla enough to be safe... just curious if others have had the same experience. To be clear: I'm not interested in debating the value of Tesla. I'm curious if ot…

If they can successfully enable fully automated self driving cars, then I think the value is entirely justified. See FaceBook.

Disclaimer: I bought Tesla calls today and now assume I’m rich so your opinion may differ

Re: Tesla 5-1 Stock Split

#19

Post by rich_sasha » Tue, Aug 11, 2020, 9:38 PM UTC

Xcelerate wrote: post #2

I don’t really understand stock splits. Is the only point to allow people to buy shares who could previously not buy because one share was too expensive? If so, why not just introduce fractional shares into the stock market with some fixed point number of decimal places? Or just keep track of ownership fraction (e.g. 0.0043% of the company)?

There are weird incentives for this.

In US the tick size for any stock is always $0.01. So a stock with a price of say $1 has a minimum bid ask spread of 1%, which is a lot.

On the contrary, if one share is too expensive, it limits liquidity in a stock. This is usually bad, though Berkshire Hathaway voting shares are deliberately kept expensive to stave off speculators.

This then get meta-player. A split suggests the company expects a price increase, and vice versa (reverse splits area thing too).

Re: Tesla 5-1 Stock Split

#20

Post by mehrdada » Tue, Aug 11, 2020, 9:38 PM UTC

oh_sigh wrote: post #16

mehrdada wrote: post #8

Earlier quoted context omitted.

One thing it can impact is derivatives trading. A standard option contract controls 100 shares, which can be quite a large amount of $ if each individual share is priced highly (likewise affects the effective granularity of the common option strike prices in the market) Update: For something like TSLA which may have some psychological "Bitcoin-like" speculation going on among retail investors, I suppose the big numbe…

Is there any reason beyond legacy that option contracts come in 100 share bundles?

You have to standardize on some common granularity for strikes/expiration dates so that each symbol has sufficient volume so that the market would not get too sparse. The theory does not require it, but when you are building an exchange, I suppose that'd be of a practical concern to you. You want interchangeability in derivative contracts and don't want each individual contract to be a snowflake.

There are "mini" options that control 10 shares, for example, but they usually have higher bid-ask spread reflecting the higher cost of pricing accurately/transaction fee/lower liquidity.