The Murky Science Of Stock Splits

Today, two things happened:

 1. Apple split its stock in a 4:1 ratio.

You owned a single share of Apple yesterday at $500. Today, you own 4 shares at an initial value of $125.

 2. Tesla split its stock in a 5:1 split.

Yesterday, you owned a single share of Tesla valued at $2,200 and today, you will own 5 shares valued at $440/each.

Why, Big Red Car?

The why seems to be a mechanical knee jerk reaction to the price of the stock and its impact on ownership.

While it is possible to own fractional shares, most stock trades are in round lots of 100 shares.

A round lot of 100 for Apple pre-split would be $50,000, post-split $12,500.

A round lot of 100 of Tesla pre-split would be $220,000, post split $44,000.

The thinking is that the reduced “more affordable” price would attract a broader constituency to buy the stock or to add to a position.

Is $220,000 for 100 shares forbidding? You can certainly argue it is.

Is $44,000 for 100 shares wildly affordable? Maybe.

So, what happens now, Big Red Car?

Like most things in life, we wait and see.

If the logic is right then when Apple goes up $1/share, you will be rewarded with each of your 4 Apple shares going up the same amount. Bravo!

Very simple idea. Simpler still proof. Wait and see.

Bottom line it, Big Red Car

This is an experiment. We shall wait and see. It is interesting that two power stocks are doing it on the same day. In my view, this makes it appear a bit more “normal.”

Apple is coming off its best Q2 ever.

Tesla is booking its first profitable year ever.

Timing has a lot to do with it. I predict this looks smart in the rear view window.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. Have a damn good week. Crush