This week we talk about stock splits. Why? Apple and Tesla have declared a stock split, so this is what you need to know and why it’s good for you to purchase before and or after the split.
What is a stock split? When a price of a stock increases significantly, you and other investors may be reluctant to buy, either because you think the price has reached its peak or because it costs so much. Corporations have the option of splitting the stock to lower the price, which they expect to stimulate trading. When a stock is split, there are more shares available, but the total market value is the same. If a company is trading at $100 a share and the company declares a two-for-one split, it will give you two shares for each one you own. At the same time the price drops to $50 a share. If you owned 500 shares selling at $100 you now have 1000 shares selling at $50 but the value is still $50,000. The initial effect of a stock split is no different from getting change for a dollar but the price may move up toward the presplit price, increasing the value of your stock. Stocks can split two for one, three for one, three for two, ten for one or any other combination.