The whole notion of individual shares with prices is legacy baggage from decades ago when trading was done with paper stock certificates. What really matters is the percentage of the company you own, regardless of how that percentage is sliced into units. Some retail brokerages already offer fractional share tracing so for those investors a stock split is mostly irrelevant.
Tesla 5-1 Stock Split
51–60 of 105 posts
Re: Tesla 5-1 Stock Split
#52I 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…
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Re: Tesla 5-1 Stock Split
#53A more informative link [1], also on sec.gov, explaining the nature of the operation, says:
PALO ALTO, Calif., August 11, 2020 – Tesla, Inc. (“Tesla”) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors. Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020.
[1]: https://www.sec.gov/Archives/edgar/data/1318605/000156459020...
Re: Tesla 5-1 Stock Split
#54I 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)?
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Re: Tesla 5-1 Stock Split
#55Does 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 honestly don't know. I owned it briefly a while ago and got scared off, only to buy back in recently... and watch it double. Right now Tesla is priced as if it was the most successful auto company in the world. I'm a little skeptical they are going to get much bigger than VW is so it's tough to see them doubling again, but maybe? I think after the split plays out, I'll likely trim my position back a bit.
I will say Tesla seems to have a pretty large competitive advantage (and perception advantage) in the market right now. It also seems like they are paying quite a bit less for batteries at the moment than anyone else.
Most Tesla competitors are announcing future vehicles with pricing and range competitive with Tesla's current vehicles, which suggests to me those same competitors are about 18-36 months behind Tesla still.
It seems clear to me anyhow that in next 20 years most new cars will be electric. How big a chunk of the market can Tesla carve out before the rest of the competition finally catches up?
Definitely my most speculative non-options stock.
Re: Tesla 5-1 Stock Split
#56For reference, here's a short amusing thread about the original Tesla IPO (even replied by Musk himself): https://twitter.com/Mark_Goldberg_/status/129281818458888601...
Re: Tesla 5-1 Stock Split
#57Earlier quoted context omitted.
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" opt…
Wouldn't make more sense to make contracts that control 1 share so that sparseness is minimized?
Re: Tesla 5-1 Stock Split
#58Earlier quoted context omitted.
You are not alone. Regular (non-tech) stock market analysts are comparing current valuations with the dot-com bubble. But there is no TINA ( https://www.investopedia.com/terms/t/tina-there-no-alternati... ). The money needs to go somewhere.
So there is an alternative?
Buy gold ;)
I wonder why TSLA is compared to dot-com stocks. Tesla produce real, tangible things, with sale and resale value; same applies to their factories. They are in the "real sector", while dot-coms were (and are) in the "virtual" services sector propped by ad revenue.
TSLA can be a bubble, but it must be a different kind of it.
Re: Tesla 5-1 Stock Split
#59Earlier quoted context omitted.
You are not alone. Regular (non-tech) stock market analysts are comparing current valuations with the dot-com bubble. But there is no TINA ( https://www.investopedia.com/terms/t/tina-there-no-alternati... ). The money needs to go somewhere.
So there is an alternative?
I left that sentence as it currently is despite the ambiguity.
Btw, I have a Nigerian acquaintance who likes to discuss a business proposal with you. How do we contact you?
Re: Tesla 5-1 Stock Split
#60Earlier 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?
100 shares is considered a "lot" and is a standard size. True, an investor can own fewer than 100 shares, but every so often a company will make an "odd lot offer" forcing investors to either sell their shares or buy enough to hold at least 100.
Another issue is that out of the money contracts for a single share would frequently trade for pennies, which would greatly increase transaction costs and make the market less efficient. So you would have to standardize on some amount that is large enough to avoid such inefficiency, and 100 is a convenient number for mental arithmetic and reduces confusion. In theory you could have standardized on a larger number like 1000, which is equally convenient, but that would have priced out retail investors who may not own 1000 shares of a company whose share price is in the double or triple digits (which is common) and reduced the liquidity of the options market (which is already not very liquid).