Wednesday, 8 August 2012

Apple rumours: share splits and DJIA inclusion.

Interesting article here: The Apple Stock Split And Its Effect On The DJIA, discussing the rumours, merits and possible effects of a share split on Apple and its inclusion in the DJIA.
Interesting also to see the difference between a price weighted index as opposed to a market capitalision weighted index.

Not sure I understand what can be read out of a price weighted index other than momentum in a share price.
It might also hint (extremely broadly) at number of shares in issues relative to its peers.

But I can see little else as share prices in themselves are not, in the main, a relative comparator due to the differing number of shares in issue for each company.

The only other thing it really tells me is that if I had a $100 and bought a single share in these 30 companies, at a point in the past, how much would they be worth today (allowing for a changing line-up of course).
But, this would also fail to account (visibly at least), for share splits which pro-rata a share price downwards whilst relegating the company in the the index. At which point the index would then not accurately reflect the current worth of the initial investment.

So, can't say I understand what a price weighted index achieves.

Back to Apple though. If it were to be included in another index then, as the article suggests, it could trigger further "catch up" buying from index trackers etc.

Onwards and upwards.

Related article links: The Apple Stock Split And Its Effect On The DJIA

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