Investing in Fractional Shares
I am quoted in the Washington Post (“Shares by the Slice: Fractional Investing Sparks a Stock Market Stampede”).
One reason behind fractional trading is that stocks have simply become more expensive. Until the past few years, most companies would “split” their shares if they became too costly for investors.
“Companies always wanted to target their stock price in the $40 range, so if the stock price rose to $80, they split it two-for-one to get back to $40,” said David Kass, a finance professor in the University of Maryland’s Robert H. Smith School of Business. “Shares were more affordable. ”
The practice of splitting stocks has been done away with, leaving many average investors to come up with more cash to make a purchase. With the onset of inexpensive and free online stock trading, many investors are finding that even single-share stocks are too lofty in price.
“If you look at the five most highly capitalized stocks — Apple, Microsoft, Amazon, Alphabet and Facebook — every one of these stocks is more than $200,” Kass said. “So fractional shares make sense.” (Amazon founder and chief executive Jeff Bezos owns The Washington Post.)
Kass said on the whole, the positives outweigh the negatives, but he said he is troubled that fractional trading encourages speculation.
“People could be looking at stock trading for the entertainment value, and inexperienced shareholders could lose money,” he said.
