Key points:
- We coiuld say that Tesla stock is down 66% this morning
- We could also say that TSLA is up 1.4% this morning
- Both are right, a sort of Schroedinger's stock price
Tesla (NASDAQ: TSLA) stock is down some 66% this morning. Or, alternatively, TSLA stock is up 1.4% premarket this morning. The thing is that both those statements are true – or at least if we correct the first to being 64.6% down. We have Schroedinger's stock price that is, both massively down and mildly up at the same time. The answer is, as most will already know, that we've had a purely nominal change in the Tesla stock price, that 66% fall, plus a real change in the TSLA price, that 1.4% rise.
Or, we could say that there really is a reason why economists keep going on and on about how we've got to distinguish between real and nominal pricing – the whole inflation thing depends upon grasping that difference.
Tesla telegraphed this change well enough that most will already be aware of what has happened – there's been a stock split in TSLA. Everyone who owned one piece of stock yesterday now owns three pieces today. Therefore the price falls by two thirds. For – from this change and this change alone – we've not changed anything else about the company. The market capitalisation is going to be the same, the value of any specific stockholding will be the same – it's a purely nominal change, there are more TSLA in existence, each one is worth less, but the total valuation remains as it was.
Also Read: How To Buy Tesla Shares
As you can see the main ticker seems to already have rebased itself.
As to why companies do these things this is purely fashion – or perhaps custom if we prefer. It's just one of those things that the New York markets think that the “right” range for a stock price is $10 to $100. Below that it's a bit racy, below $1 it's a penny stock and they're simply dreadful. Which is why the NYSE or NASDAQ quote is lost if the stock price stays down there under $1. Above $100 is regarded as expensive.
That this is just fashion is shown by the same range in London being £1 to £10. Which is also why most London listed stocks have 10 pieces in their ADR. So as to be in that sweet, “right”, range in both markets.
It's possible to have arguments as to why this is all so. A share price in the hundreds of thousands – like one of the Berkeley Hathaways – could just be too large to fit into the average portfolio. But that would be historical – we can have fractional stock ownership now. Very low prices were a problem when there was a minimum tick size – 12.5 cents on a 30 cent stock is a much bigger portion left with the market than 12.5 cents on a $90. But we've not got minimum tick sizes now and anyway, most of us retail traders are trading at the market these days.
No, it's just old-style fashion and custom that still continues. Humans are still subject to the money illusion and that's just the way it is. It's the same reason supermarket prices are 99 cents, $1.98 and so on. That's just the way we think.