What do they mean?
On Monday 31st August 2020, both Tesla and Apple’s stocks will be split from 1 share to 5 and 4 shares respectively.
Stock splitting is an action taken by a corporate body in which they issue their shareholders with more of shares of the stock they own whilst also splitting the price of the share to the same degree. If a share has been split 1:5, then the price of a share after the split will be 1/5th of its original value. You have 4 additional shares of which all 5 are 1/5th of the price of your original share.
When a company divides the existing shares of its stock into multiple new shares to boost the stock’s liquidity.
As a whole, the value of the shares collectively remains the same, but each share price becomes a fraction of what it once was.
The Psychology
In a way, Apple and Tesla are using this corporate action as a way to manipulate how people view their shares. By lowering the trading price of shares, they are able to appeal to a wider audience of investors. These investors are more comfortable with putting their money into an asset of Apple/Tesla if it appears to be cheaper. Potentially posing less risk in order to take part in the ownership of the company.
Another stance to consider is the whole stock purchases. Brokers that do not sell fractional shares will only have the shares available at their full trading value. Let's say Apple’s stock is $500 before the split. You would have to pay the full $500 in order to own the share, rather than opt into a fraction of a share — like buying a percentage of one share. However, when the stock splits by 4, assuming there is no volatile change in the value of Apple’s overall collective stock price, the value of each share would be $125 (500/4 = 125). Consequently, investors wanting to plunge smaller amounts into Apple’s stock will be able to after the split.
The Problem
Bulls are writhe in the market.
Governments love to print money. You may have heard of these stimulus packages coming out of the dark to bring you to the light. Accompanied is a false sense of security — depending on how these packages are used. It seems people are less willing to venture out and spend their money on goods and services at the moment, which seems rather odd. Oh, wait… We are in the middle of a Pandemic.
You get your stimulus, you’ve been made redundant, you’re less likely to go out and buy the really cool Prada handbag or Rolex watches you’re gagging to get your hands on. What do you do with this cash sitting around?
Invest it:
New traders on apps like Robinhood, Etoro, Trading212, and Degiro are hot in investing in the perpetually increasing stocks of Apple and Tesla, witnessing almost unprecedented value increases in anticipation of the stock splits. Tesla stocks have more than doubled since the start of July, from $1000 to over $2200! That’s to say that if you had invested $10,000 at the start of July, you would see a value of over $22,000 in your account today.
In under 2 months…
Speculative Bubbles Pop with Almighty Bangs
This may increase the buy volume of Apple/Telsa’s shares, with the demand based not on what the company is bringing to the market, but merely the predicted value of the stock rising like the Falcon Heavy rocket — straight up into space.
This is not to say Apple and Tesla aren’t releasing innovative and competitive products, with the new iPhone 12 and the production and distribution of the relatively recent Model Y of Elon’s S3XY range, both companies are refreshing and growing. My statements are simply to mitigate the risk of the damage potentially hyperinflated share prices may have. Prices that don’t quite equate to what the companies are churning out — especially during a global pandemic flooding the world with uncertainty.
In the past
Since their inception, Apple has split their stocks 4 times. The most recent being the 1:7 stock split on June 9th, 2014. The price was chopped from just under $700 to just under $100. In 12 months, the stock price would see a $40 increase to $130 (+45%). If this is anything to go by, you may see a solid rise in your investments come August 2021. Maybe.
Is this a story of what is to come?
Big Risk Big Reward
But also big loss. In terms of sizeable cohones, Apple and Tesla stocks may be for you. If you want more reliability on the investment front, as I have mentioned in my previous posts linked below, you should investigate diverse portfolios and Index Funds.
- You Just Lost 0.0000003% Of Your Money
- Will Crypto’s Rocket Crash?
- The Withdrawal Fee For The Lifetime ISA Is Actually 6.25%
You might even save enough to connect your iPhone 20 with Tesla’s new hovermobile.
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The Apple and Tesla Stock Split | by Stewart Holloway | Medium was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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