Please briefly explain the effect of a stock split on investors?

Question

Here is the story, and why I am confused.

I had 166 shares of the etf VWO. Apparently there was a stock split, and now I have 332 shares. The price of each share is apparently not cut in half?

So in one day effectively the value of my investment doubled.

How can this be? I must be missing something?

Thanks.

Answer 1

Splitting stock is usually a way to make stock more affordable so more people can buy it and is a sign of a company that is doing well.

Technically the split would be just that.  100 shares worth $100 each would become 200 shares worth $50 each.

However, a split drives prices higher because people see it happen and think "this company is going somewhere."  There generally is a brief gain in value as people buy up shares but they will usually come back down fairly quickly.  It would make sense if it balanced out close to 50% of the value before the split.  Sometimes it will stay high--good news for you!  It all depends on the market and your company's performance.  

Answer 2

You said it yourself the price of each share was cut in 1/2...Your investment DID NOT DOUBLE.  It's exactly the same as it was before only you have more shares to watch appreciate over time (you hope).  PEACE!

Answer 3

What you're missing is all the market activity immediately after the split.  When the shares were split 2-for-1, the price of each share was cut exactly in half so that the total market capitalization remained the same.  However, if VWO was a hot item that day, then buyers would have jumped on the new stock and the demand would have run the price up.  Apparently it went up to pre-split values.

However it didn't stay there.  You're asking about the June 18 split, aren't you?  The price has steadily declined since then.  It was 49 at the split and is now down to 41.

Answer 4

You must be looking at ADJUSTED prices  (like on a Yahoo! chart).

Looking at UNadjusted prices, on 6/17 the closing price was 97.28.  On 6/18, the day of the split, the closing price was 48.04.  So the price WAS cut in half and the value of your position stayed the same...as always happens with a 2:1 split.

http://finance.yahoo.com/q/hp?s=VWO