A gentle reminder that stock splits basically don’t matter and, no, Google hasn’t robbed you of voting rights.
On Thursday morning Google started trading post-split, as explained in this post from Derek earlier in the day. I’m a Google shareholder, and instead of having shares worth over $1,100 each I have twice as many shares trading at half that price.
I think it’s important for people to have a basic understanding of how the stock market works, because investing in the market for the long term is one of the best ways to ensure you have plenty of money later in life. But too many people get caught up in the day-to-day gyrations of the market instead of focusing on making investments in great companies for the long run.
It isn’t going to change anything in the long run
I happen to think Google is one of those great companies. I’ve been a shareholder for many years, and I plan to be a shareholder for many more years. But as far as the stock split goes? It’s pretty much a non-event to me. I couldn’t care less.
More pieces of the same amount of pie
All a stock split means is that your shares get cut in half. Imagine that you and three friends split an extra-large pizza evenly. It doesn’t matter how many pieces your quarter is cut into. You’ll still be just as full (or hungry) when you’re finished eating. No-brainer, right?
Academics can argue about signalling theory or other psychological aspects of trading around a stock split. I think it’s a waste of time. It isn’t going to change anything in the long run.
Fight for your right to misunderstand
Now let’s talk about voting rights, because there are a lot of confused people out there.
Your voting rights have not changed
As Derek explained, Google did this so that founder and CEO Larry Page and co-founder Sergey Brin would maintain more voting control of the company over time. The founders hold multiple voting shares known as "Class B" stock. Regular investors who held regular voting stock seem to think that the creation of "Class C" (non-voting) shares robs them of their voting rights.
It’s not true. Shareholders still have exactly the same number of votes today because they still own a Class A (voting) share for every pre-split GOOG share you owned. The number of voting shares also has not changed. If the numerator and denominator have not changed, then guess what boys and girls?
Your voting rights have not changed. This fact, unfortunately, won’t stop people from misunderstanding what is happening.
Don't like it? Sell your stock
Here’s another tidbit for you. If you hold "Class A" shares, your voting rights are also preserved — just like Larry’s and Sergey’s. This is because future share issues (for stock compensation and acquisitions) will be mostly non-voting stock. The only people who lose voting power are future shareholders of the new Class C stock.
But it’s all irrelevant. Yeah, it’s nice to have voting power. But in reality if a company is doing dumb things, which am I more likely to do:
- Go complain at the annual general meeting
- Or sell my shares and invest in a company that isn’t doing dumb things?
If you voted “B”, you win.
So when you invest, just pick great companies and ignore stock splits. They really don’t matter.