After a stock announces a split, is it better to buy before the actual split or after the split?
Stock splits are great ways to tilt the odds of winning in your favor. We love them. We love to play stocks as they approach their splits as we have found that stocks frequently have a 'pre-split' run into the actual split. While stocks often gyrate back and forth after an announcement as buyers run in and others take profit, more often than not we see the run come in the last week before the split. Doesn't always happen, but we charted many, many stocks over the years, and the pattern is amazing. We wait until we see the stock start the run, and then we jump aboard. There is more to it than that (we want the stock to be technically sound, etc.), but that is the general idea.
As much as we love the pre-split run, we have found that many stocks fall after their split. It can be a quick drop and then a recovery, or it can be a prolonged correction. The latter often happens when a stock splits several times in rapid succession and the float increases dramatically. Not always, but we have seen it happen. Anyway, we have seen it enough that we always have that dilemma when the split is at hand and we have had a great run: should we hang on or bail out? Strong stocks with a lot of momentum can blow right through the split as investors rush to get in on a 'cheaper' stock. Many, many times, however, stocks, no matter how strong they are, will pull back after a split. That is why if we have any doubt, we will sell with the profit. If the stock shows great strength still, we can always get back in. It is frustrating, however, to have a great pre-split run and then have the stock gap down at the open on the session which the split becomes effective.
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