Share Price Doesn't Mean Much

Heh???????

You'd be amazed how many times I witnessed the following scenario. I just completed a presentation to a friend, colleague or investor about the investment merits of a public company.

Then someone asks, "What's the stock trading at?"
I respond, "One dollar and 25 cents."
I hear, "Wow, that's cheap. Or 6 cents, that's cheap. Eighty dollars, wow that's expensive."

This mode of thinking was confirmed when I heard a client remark after a 2 for 1 stock split, " Wow, it's much cheaper now." I still believe that until this day, my client actually never realized that the stock was trading at the same price. If you think this type of thinking is restricted to novice investors, you're probably wrong. Why do $150 stocks on the NYSE split? Because their cheaper at $75 or $50.

Warren Buffet, arguably the most successful investor of all-time understands this better than most. I wish I had a few drops of sodium pentothal to give old Mr. Buffet. I'd ask, " So how come you never split the stock.?"
I'd probably hear, " Less shareholders, everybody thinks it's too expensive."

We must all remember that we are ultimately investing in a public company. After you've done all your research, shares outstanding multiplied by stock price determines if a stock is cheap. If one company has 1 million shares outstanding at $1 a share and the other has 5 million shares at 20 cents, which is cheaper? I hope you get the point.

This topic and this post are extremely relevant to investing in the small cap stock market. I'd guess that over half of all investors never even bother to find out how many shares are outstanding. The share price doesn't mean much. Sad but true.