“I’ll be the first person to tell you that splits don’t actually change anything objectively, but they can make a difference subjectively in the eye of the beholder,” he said. “And I think we need them because these down-100-point moves are just too emotionally jarring for words.” (Related:Apple Investigating Stock Split: Top Analyst)
Cramer pointed out two stocks that took a beating: Priceline, down $115 per share, and Chipotle, which last month saw a 100-point drop.
Priceline, the travel-booking site, took a hit due to European weakness. “”But at the same time, there were plenty of good parts to the quarter that were overshadowed by Priceline’s stunning deceleration in bookings,” he said.
Chipotle, when it reported earnings in mid-July, last about one-quarter of its share price after it revealed a slowdown in same-store-sales growth.
“Sure, I can’t sugarcoat these disappointments,” Cramer said. “Priceline pretty much told you to sell the stock if you think Europe’s not coming back.”
As for Chipotle, he said that the valuation seemed “downright ridiculous in retrospect, unless you consider that the estimates had always proven to be too low.”
Both Chipotle and Priceline have dismissed talk of stock splits during their multi-year runs.
“I can’t blame them and I understand their reluctance,” Cramer said. “Splits are totally cosmetic. They mean nothing. You’re just getting several pieces of paper instead of one piece of paper.”
The benefit, however, would be that big moves to the downside would look less frightening.
For instance, if Chipotle and Priceline had split 10 for 1, each stock would have only declined about 10 points — a level Cramer said many retail investors would consider manageable, or even a buying opportunity.
“Instead, these declines are just clarion calls that say no homegamer should invest in anything that can decline by 100 points in the blink of an eye, even as it’s right that their stocks should be punished for these misses,” he said.
Although Cramer has repeatedly urged investors to divide big-number moves by 10 to maintain persopective, sometimes the advice falls on deaf ears.
“So, I’ll say it. CEOs, if your stocks are north of $100, just split the darned things,” he said. “You’ll attract more retail investors, and that’s exactly what you need to give your stocks less volatility and more stability, something you always tell me you want, and something that would be terrific for the market as a whole.”
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