Why are some stocks so expensive?
A common complaint newcomers have to the stock market is that the stocks they know best and want to buy are hundreds, even thousands, of dollars per share. It makes them appear out of reach for most investors because who wants to own only one share of Amazon? (About $1350 per share at this writing). Once upon a time, as stocks became more expensive, companies would ‘split’ their stocks, that turn a single share trading at say $100 into 10 shares worth $10 each. They would split shares in half, into fifths or whatever else made sense for them. This made shares accessible to everyday people. It was accepted that a company that regularly split it’s stock was confident that it would continue growing, and most firms avoided their shares going over $100 per share (ok, I am showing my age here).
Somewhere along the way, companies began to equate a having a high stock price as a measure of prestige. Some people attribute this world view to Warren Buffet, who suggested that by keeping his share price high, he attracted a ‘better’ class of investor (i.e. a wealthy one who would not trade in and out of his stock at a whim).
Today, with fractional shares so accessible, keeping a share price high is less of an issue. You can buy a fraction of an Amazon share. Or you can buy a mutual fund or ETF which has Amazon in it, effectively buying a fractional share. But humans are human and it is gratifying to say you own 100 shares of something. So most people would rather buy 100 shares of a stock that trades at $20 rather than buy a single share of some company that trades at $2000 . Either one can go up 10%, and you will make $200 either way, but most people would prefer to own 100 or something rather than one, math be damned.
This explains why companies that do split their stocks tend to see their share price rise, regardless of the fact it effectively changes nothing mathematically. More people look to buy the shares when they are cheaper, thus sending up the price. I like to see stock splits because it opens up safer option trading to more people. It takes a 100 shares to write a single covered call contract and covered calls are the safest way to begin learning about options. Options on shares that trade in the $1000s involves more risk, not something a beginner should not be playing around with. So Amazon, do everyone a favor and split already.
Market Today: The market finished off the month today making record highs, making October the best month since November of 2020. This is despite poor earnings from Apple and Amazon. In general, everyone is citing supply and inflation issues but still 80% of the companies that have reported so far (about half) have beat Wall Street estimates and cited strong demand. I closed a lot of tech puts.