Stock splits truly boost share prices—but not for the reason you think.

Other highest-priced stocks in the S&P 500 include Booking Holdings (BKNG), at approximately $2,300; AutoZone (AZO), at around $2,040; Chipotle Mexican Grill (CMG), at roughly $1,600; and Mettler-Toledo International (MTD), at about $1,350. A common rationale supporting stock splits is that they make shares more affordable for individual investors—or employees—who might otherwise struggle to purchase high-priced stocks. For example, consider a company with a $2 billion market capitalization, 1 million shares outstanding, and a share price of $2,000. After executing a 1-for-10 split, the company would have 10 million shares outstanding, each trading at $200, while its market capitalization remains unchanged at $2 billion. Pre-split, shareholders receive nine additional shares for every one share held. An investor previously willing to invest only $200 can now buy one share—and do so at just $200 per share instead of $2,000. Companies desire a diversified shareholder base comprising both institutional and retail investors—a group whose influence on markets and individual stocks has grown significantly in recent years. Yet this logic matters far less today than it did just a few years ago. Most brokerages now allow investors to purchase fractional shares—i.e., ‘slices’—of individual stocks. Fidelity enables customers to buy thousands of U.S. stocks and ETFs starting from as little as $1. Robinhood users can even purchase one-millionth of a single share. An investor can effortlessly acquire $200—or $1, or $10, or $54.31—worth of a $2,000 stock. A Fidelity spokesperson noted that last year, 2.3 million accounts utilized fractional-share trading. Moreover, many investors gain exposure via index-tracking ETFs, which already let them hold baskets of stocks at prices far below the aggregate cost of the underlying securities. In the past, splits could disadvantage investors who paid per-share commissions (rather than per-trade commissions). But in today’s zero-commission trading environment—now standard across most brokerages—this drawback has essentially vanished. Options trade in standardized lots of 100 shares, so options contracts on high-priced stocks can be prohibitively expensive. Over the past two years, retail participation in options markets has exploded—potentially amplifying this effect. Yet this concern matters far more for companies like GameStop than for giants like Amazon or Alphabet. Lower share prices make Amazon or Alphabet more viable candidates for price-weighted indices such as the Dow Jones Industrial Average. Though still speculative, Apple joined the Dow in 2015—just one year after completing its 1-for-7 split. Since its 1980 IPO at $22 per share, Apple’s stock has undergone five splits. Adjusted for splits, its IPO price amounts to merely $0.10 per share.

CANSLIM Reading Notes from 'How to Make Money in Stocks': Principle #5 — L (Leader or Laggard).

L = Leader or Laggard: Which is superior? Only the best of the best should be bought. Generally speaking, the top three companies within a strong industry tend to deliver extraordinary gains, whereas other stocks in the same sector often remain unremarkable. By ‘outstanding performers,’ I do not necessarily mean the largest firms or those with the most famous brands—but rather those exhibiting the strongest quarterly or annual earnings growth, the highest return on equity and profit margins, the fastest sales growth, and the most dynamic price appreciation. Such companies typically introduce distinctive, innovative products or services—and steadily capture market share from entrenched, less-innovative competitors. Beware of imitation without substance. Our research shows history repeats itself in the stock market. ‘Following the herd’—buying a stock simply because you expect the true industry leader to lift its price—is a flawed strategy. In reality, these follower companies usually post markedly weaker earnings, and their share prices consistently lag behind the leaders—resulting in mere mimicry, not leadership. How to distinguish leaders from laggards: Use relative strength (RS). If you hold a portfolio of stocks, you must learn to sell the weakest performers first—while holding onto the strongest. You can also plot a stock’s relative strength line on a chart. If the RS line has declined for at least seven consecutive months—or dropped sharply and abnormally for at least four consecutive months—the stock’s price trend becomes highly suspect.

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