What is a stock split?

A stock split is a corporate action that occurs when a company’s board of directors decides to multiply the number of shares owned by existing shareholders.

The action will increase the number of shares outstanding, but reduce the share price by the same factor. Overall, a stock split will not change to a company’s market value.

For instance, XYZ Corp. has 1 million shares trading at $10 apiece and decided to initiate a 2-for-1 stock split. Doing so would give shareholders an additional share for each share they own while cutting the stock price in half to $5. The company’s market value would remain at $10 million.

Stock splits, which in the past have been done to make shares more attractive to retail investors, have declined in popularity in recent years due to the emergence of exchange-traded funds and mutual funds. More recently, investors have been given the option to purchase partial shares.

Not everyone was in favor of stock splits even when they were more popular.

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Legendary investor Warren Buffett is perhaps the most outspoken critic of the practice. He holds the belief that a higher stock price attracts long-term investors who care more about profits than short-term fluctuations in the value of shares.

However, in 2010, Buffett’s Berkshire Hathaway split its Class B shares 50-for-1, lowering the price from $3,475 to $69.50. Berkshire’s Class A shares have never split.

Ticker	Security	Last	Change	Change %
BRK.B	BERKSHIRE HATHAWAY INC.	463.46	+3.08	+0.67%
BRK.A	BERKSHIRE HATHAWAY INC.	695,152.25	+6,900.25	+1.00%