Do stocks affect how a stock moves? This is an interesting question and many investors believe that stocks that have just split have a high probability of going higher in the future.
This does make sense after all stocks split because the price of their stock has become too high for the average investor to get into. By splitting the stock a company can make it more affordable for the average investor.
Nothing has changed, so eventually the stock should be pushed back to that high price by the same forces that pushed it there to began with, at least in theory. There is also the psychological aspect. If a stock was trading at $200 and they had a 4 for 1 split the stock price would then be $50, even though nothing has fundamentally changed investors who are used to seeing it at $200 are going to consider it a bargain and start buying it.
If you look at the historical stock splits and their impact on the stock it does seem to have some truth to it. After all stocks that are spliting are usually outperforming the market to began with.
But don’t use this as an end all way of investing in the market. There are plenty of other things to look at which can greatly increase your odds of success. For example if the company is fundamentally strong and offers a high dividend paying stock, so much the better. That is really putting all of the odds in your favor.
One other thing that can be just as powerful would be combining stock splits with momentum investing. If a stock splits and then starts to fall there may be something else going on and it might not be such a great investment.
But if the stock splits and then starts to go up again it could signal that it is continuing to go up after the split giving it a good chance of being a good investment.
