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I know that one story that will make the rounds is that the boutiques near me split will allow investors who were hitherto unwilling or unable to buy the stock to be able to do so, thus expanding the investor base and improving liquidity. In fact, if it turns out (as some news stories are suggesting) that much of the price increase in the last four days has come from institutional holdings expanding, the liquidity argument becomes even weaker. Thus, for those institutional stockholders in Google who were quoted in the news stories yesterday as being disappointed that your counsel was not heard, I have little sympathy for you. In my earliest posts on Apple, I argued that the company's success in the last decade and a few missteps, especially in the early part of 2011, had made it a magnet for stockholders of every type: growth, value and momentum. The stock buyback and dividends reflect how Apple plans to return cash to its stockholders and has no effect on operating asset value. There was a price effect: While we can make the standard arguments for why the price changed after the report, i.e., that the dividends make investors feel more secure about future cash flows from their Apple stockholdings and that the stocky buybacks are a signal that the company believes that its stock is under valued, those arguments are undercut by the fact that Apple has tried both moves before, with little success in moving the pricing needle.
It gives the investor holding it the right, but not the obligation, to sell the stock at the specified price at the stated date in the future. It included almost every catalyst that companies that believe that they are under valued use to attack the gap between price and value: a dividend increase, an increase in the stock buyback program and a 7-for-1 stock split. If the reaction to the latest earnings report is the shift in momentum that Apple (and its activist investors) have been seeking for the last two years, it is ironic (but not unexpected) that it happened in response to the stock split, the least impactful of Apple's many tries during the period, and not to the more momentous events over that period (which included the launch of new products, acquisitions, buybacks, a debt issue and dividend increases). That conviction was tested in early 2013, partly by the continuing drop in the stock price and partly by activist investors (like David Einhorn and Carl Icahn) arguing that Apple should do something with its cash. That is also why it is difficult, if not impossible, for companies to devise plans to make price gaps go away, because these plans are generally based on the assumption that investors will react sensibly to them.