Financial Word of the Day: Stock Split

Larry Jones
Aug 14
2 min read

Updated: Sep 25

Ever wished you could double your money by simply slicing it in half? That’s basically the magic trick a company pulls off with a stock split—except it’s not really about making you richer (at least, not instantly).

Definition of Stock Split

A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing more shares to existing shareholders. Although the number of shares increases, the overall value of the company (market capitalization) stays the same. Think of it like cutting a pizza into more slices—more pieces, same amount of pizza.

For example, in a 2-for-1 stock split, each shareholder receives one additional share for every share they already own. If you had 100 shares before the split, you now have 200. But the share price is cut in half—so if the stock was $100 before, it's now $50. Your total value? Still $10,000.

Why Do Companies Do This?

Companies typically split their stock when the share price gets too high and may be intimidating to smaller investors. A lower share price can:

Make the stock feel more affordable
Increase liquidity (more shares, more trading)
Attract new retail investors who prefer round numbers over fractions

Reverse Stock Split?

Yes, there's a reverse version too. A reverse stock split reduces the number of shares but increases the price per share. It's often used to meet minimum price requirements to stay listed on a stock exchange or to boost a sagging share price.

**Learn more about investing from Speak the Language of Money**

Example in Real Life

Let’s say you bought 10 shares of Tesla at $1,000 each. Then Tesla does a 5-for-1 stock split. Now you own 50 shares priced at $200 each. Same total value ($10,000), but now your portfolio feels a little fuller.

And here’s the kicker: companies that split their stock often do so because they’re growing. While a split doesn’t automatically increase the stock’s value, it can signal strength, attract new investors, and sometimes… yep, lead to higher prices down the road. (But no promises—investing isn’t magic.)

In Conversation

“Apple’s doing another stock split. I might grab a few shares while they’re priced lower post-split.”

"Remember, the price per share is lower, but the value’s the same. It’s like trading a $20 bill for four fives.”

Bottom Line

A stock split doesn’t directly put more money in your pocket, but it can be a sign of a company’s confidence and growth. And when strong companies make their shares more accessible, more investors can jump in—sometimes pushing prices even higher.

Financially speaking: More slices. Same pie. Possibly more hungry buyers.