by Peter Lynch
* Throughout the day I’m constantly referring to stock charts. I keep a long-term chart book close to my side at the office, and another one at home, to remind me of momentous and humbling occurrences.
What most people get out of family photo albums, I get out of these wonderful publications. If my life were to flash before my eyes, I bet I’d see the chart of Flying Tiger, my first tenbagger; of Apple Computer, a stock I rediscovered thanks in part to my family; and Polaroid, which makes me remember the new camera that my wife and I took on our honeymoon. That was back in a more primitive era, when we had to let the film develop for sixty seconds before we could see the picture. Since neither of us had a watch, Carolyn used her physiology training and counted out the seconds with her pulse.
* Some people confuse dividends with the earnings we’ve been discussing in this chapter. A company’s earnings is what it makes every year after all expenses and taxes are taken out. A dividend is what it pays out to stockholders on a regular basis as their share of the profits. A company may have terrific earnings and yet pay no dividend at all.
* Throughout this book we’re going to be faced with the complication that occurs when companies split their shares—two-for-one, three-for-one, etc. If you invest $1,000 in 100 shares of Company X, a $10 stock, and there’s a two-for-one split, then suddenly you own 200 shares of a $5 stock. Two years later, let’s say, the stock price has risen to $10 a share and you’ve doubled your money. Yet to a person who didn’t know about the split, it would appear as if you’d made nothing—the stock you bought for $10 is still selling for $10.
In the case of Subaru the stock never actually sold for $312. There had been an eight-for-one split just before the high, so the stock was actually at $39 ($312÷8) at the time. To conform with this price, all presplit levels must be divided by 8. In particular, the $2 low in 1977 is now a “split-adjusted” 25 cents per share ($2÷8 = $0.25), although the stock never actually sold for 25 cents.
Companies generally prefer not to have their share prices too high in absolute dollar terms, which is one reason why stock splits are declared.
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