Apple and Tesla Set To Split Stocks. Should You Buy Now or Wait? | Freeman Capital

Tesla and Apple Are Splitting Stocks

Big news came out of two giants of industry that grabbed headlines. Tesla and Apple would both be splitting their stock. Why are they doing it? Just look at their one-year stock movements below:

Should It Matter?

Those are big dollar amounts, and they want to be more attractive to buy for the little guy, the retail investor like you and me. Nice of them. Tesla is splitting 5-for-1, and Apple is splitting 4-for-1, in order to bring their share price down to a more manageable level. More retail demand for the stocks, more liquidity available, easier capital markets to manage, the theory goes – both stocks gained on the news this week to reach all-time highs.

What Can You Do?

Before you go and pump your life savings into the two companies, know that there is no longer much of a point in stock splits. For one, most discount brokerages allow you to purchase partial shares nowadays – removing the need for the stocks to be at a lower price. Secondly, through the advent and mass adoption of Exchange Traded Funds, which pool investors’ cash like yours and mine to buy portfolios, the share price is less likely to be cumbersome. For example, the SPDR S&P 500 ETF (ticker: SPY) is one of the most owned ETFs around, with assets under management of $229,732,740,000. They own a bunch of Apple already – you think they care if the price is $400 or $100?
Not to beat a dead horse here, but the implication that these stock splits are making the company “more valuable” should be thrown out immediately. The market value is important, of course – the number of shares X the share price. But if you split the shares 4-for-1 and the price drops by 4-for-1, what changed? Did the company all of a sudden become more profitable, or have better future prospects?

It is said best by Investopedia.com (which is a great resource, btw): “A stock split simply has no effect on the fundamental value of the stock and poses no real advantage to investors.”

Diversify across assets, invest passively, and play the long-term game. Not saying the two stocks are bad investments (quite the opposite). Just know what you’re getting into, and don’t buy something just because of arbitrary accounting practices. Better yet, let us help you invest.

 

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Freeman Capital

Freeman Capital

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