*NOTE: I am not a financial advisor.
In light of recent events with Tesla and Apple splitting their stock, I thought I would give my take on them. Given that there are “analysts” and “experts” who give their expertise and predictions on everything surrounding stock splits, it is hard to “take these seriously” and to really use this as advice. Rather, I would like to give my take based on just logical thinking.
What are Stock Splits Really?
First the most important thing is to define what a stock split is. This is really an action a company can take to make it easier for the investors with less buying power to begin investing in the company. Technically speaking, this does not change anything fundamentally about the company; No new product; No new services. All it does is lower the entry price per share.
With Robinhood, and more recently, Charles Schwab, starting the trend of fractional shares, it is easy to ask what the benefit of a company splitting their stocks is. Simply, it is a matter of how someone views the share price. Especially with fractional shares relatively new, and not universally available through all brokerage, it does allow potential investors to be able to enter at a much lower price.
Now that it has been a bit of time since Tesla (Ticker: TSLA) and Apple (Ticker: AAPL) have split their stocks, we can see how “hype” really affects the stock price. When a stock split was announced, both shares skyrocketed just off the mere announcement of a split. Two days after both stocks split, the prices started coming back down to Earth for many reasons. The reason that most people would believe is that people started taking profits off of a ludicrous run that had no substance.
What I Took From the Two Stock Splits
If there is hype, the stock prices will go up, substance or not. Another aspect that I believe some overlook is the basic idea of supply and demand. Sometimes it does not matter whether there is a reason for prices to go up. If people are willing to buy more shares because the price of a share is substantially lower, e.g. after a stock split, if there is a finite supply of shares and the demand goes up, the share price will naturally trend upwards.
For those who want to make a quick buck and want to take on the risk, I can see that some will buy at the announcement of the stock split, and sell once the split has happened. This is obviously more risky, but there is the huge potential upside to it that some are willing to take. Fortunately for some, they may already have had bought the company, potentially at lower prices, and are either enjoying or ignoring the wave of euphoria as more people buy in, driving up demand and thus driving up prices of share prices.
I was personally invested in Apple already, albeit a small amount, and jumped in on the hype of Tesla midway through. Although, I do believe in Tesla long-term. I was simply “waiting” for a better opportunity to go in but soon “YOLO-ed” it. I am normally a more “play it safe” type of investor with more money in dividend paying blue chip stocks. If you are interested in diversifying your portfolio with “safer” plays, I wrote a blog not long ago on ETF investing.
What Am I Doing About These Two Companies?
Currently, I am dollar cost averaging into Apple as the stock continues to have huge swings upwards and downwards. It is much easier for me to dollar cost average with Apple for two reasons: A share of Apple is cheaper than a share of Tesla, I can buy fractional shares of Apple but not with Tesla using Schwab’s fractional shares capability. I believe in both companies long term. I believe Tesla has the most potential however, as it currently boasts a $400 billion market capitalization and I can see it easily as a $1 trillion company within the next few years. Apple is currently worth over $2 trillion, but with exciting new products coming out, especially those Apple glasses, I believe this company has more to grow, as it tries to get its hands on as many different aspects of life as it can. But until next time…
We appreciate y’all for letting us be a part of your Break Time.
Checking out, Kenny
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