This is because the market capitalisation of the company didn’t change. To answer the question simply, a stock split doesn’t (shouldn’t) affect an investor’s stake or portfolio allocation in the company.įor instance, if the investor held 10% of Company XYZ in his portfolio before the stock split, the portfolio allocation for the company will still remain at 10% after the stock split. How Does A Stock Split Affect Me As An Investor? However, its market capitalisation remained the same at $50,000. We can see that after the company did a 2-for-1 stock split, its share price halved and its outstanding share count doubled. Take the below of Company XYZ as an example where the company did a 2-for-1 share split: On the distribution date, holders of the company’s stock will receive additional shares (based on the announced split ratio) for each share they hold as of the record date. Market capitalisation is simply a firm’s outstanding share count multiplied by its share price.Ī stock dividend is a common way to implement a stock split. In the stock market, a stock split is where a company’s outstanding share count will increase, and the corresponding share price will decrease proportionately, but its total market value (or market capitalisation) will remain the same. If you put all the ten pieces together, you end up with one large pizza again. What you have just done is just like a 10-for-1 stock split. Therefore, you cut the large pizza up into 10 equal parts so you can consume one piece at a time. Upon ordering, you realise that the pizza has not been cut up as it usually would be, and it’s too large to consume at once. Imagine you have ordered a pizza for lunch.
If you are wondering what a stock split means and how it affects you as an investor, you have come to the right place. This is the second time that Tesla is splitting its stock in as many years, with the previous one happening in August 2020 on a 5-for-1 basis. The world’s most valuable carmaker did a 3-for-1 stock split that took effect on 25 August 2022. Electric car maker Tesla Inc (NASDAQ: TSLA) just split its stock.
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