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Finance Glossary

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Stock Split

Definition:

See stock dividend. They are identical in result.

Example

Investors get all excited when they hear news of a stock splitting. Economically, this event means next to nothing. All it does is take a pie that's divided into six slices, and in the case of a 2 for 1 stock split, divide that pie into 12 slices. Or, said another way, an $80 stock becomes two shares of a $40 stock. 

That said, companies usually only split their stock this way when they are bullish on the future returns. There is also a funky thing called a reverse stock split, in which case a company goes from having, say, a two-dollar stock, and in a 1 to 5 reverse split, that two dollar a share hundred-million share company becomes a $10 a share 20,000,000 share company.

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