What Makes A Market?

Simultaneous buying & selling

Opinions vs. facts vs. rumors vs. misconceptions

An example of a perception impacting markets: Our editors recently received an e-mail question from Jean of California asking, "Wouldn't this be a good time for INTC to split before MSFT gains market share?"

The misconception about the meaning of a stock split is very common these days. The result of a stock split is that more individual investors can afford a round lot, or 100 shares, because each share costs less. Capitalization, accounting relationships, company operations, marketing, etc. are not affected. Since potentially more people can buy (and hold?), the stock should trend up in value if all other factors remain unchanged.

This idea that a split affects marketing or other aspects of a company is an example of a misconception that if wide-spread enough, can impact the price of a stock.

Watch what happens when a company announces a stock split and follow it through the split. You may observe other factors impacting the price.

See also: Rationality

The investment axiom that is always valid: Caveat Emptor

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