Companies split their stock to reduce the price per share.

Years ago, investors paid brokers a premium to buy stock in "odd lots" of less than 100 shares. Reducing the share price made it easier for small investors to buy 100 shares. Today, thanks to the growth of discount brokers, the odd-lot premium has virtually disappeared.

Nevertheless, many companies continue to split their shares, mainly for marketing reasons. A stock split generates publicity and attracts some investors who mistakenly think low-price shares are a bargain or that splits make stock prices go up.

In reality, a split changes nothing about a company but its stock price. When a company splits, it doles out one or more shares for each existing share. This reduces the share price proportionately. A 2-for-1 split reduces the share price by half; a 3-for-1 split cuts it by two-thirds. Shareholders are no better or worse off after the split. Instead of owning 1,000 shares at $60 each, they will own 2,000 shares at $30 each (in a 2-1 split) or 3,000 shares at $20 each (in a 3-1 split.).

In the late 1990s, many soaring dot-com companies split their stocks and lived to regret it. After the market crashed, their shares were trading for pennies. To get the price back above $1 -- a requirement for listing on NASDAQ -- they did reverse stock splits.

Some companies never split their shares, perhaps thinking a high share price connotes luxury, like a Prada purse. Berkshire Hathaway, which closed above $100,000 for the first time in October 2006, says it doesn’t split its stock because it wants to attract "high-quality shareholders."