Yesterday Apple's stock started trading post 7-1 split. For every share that existed before there are now 6 new shares alongside it. If you owned 100 shares of Apple you now own 700 shares. Instead of the stock trading above $600 it now trades in the $90s.
Apple announced the split in late April alongside the Q2 results. At the time I explained how splits work and how they don't mean anything from a financial perspective. It would be similar to taking your giant slice of pizza and cutting that slice into 7 smaller slices. You'd still have exactly the same amount of pizza.
But from a psychological perspective stock splits do have some meaning. Splits are proposed and then approved by a company's board of directors. Board members know what's happening inside of a company (or at least one hopes they know). If they are smart and in tune with the market and their company's prospects they should have an idea of whether or not their stock is at significant risk of collapsing in the near term.
So if a board approves a split, it generally signals that they believe the stock doesn't face any big near term threats. But just because a board of directors feels this way doesn't mean they are correct. That said, it's worth considering their implicit opinion simply because they know more than the average shareholder.
And when a board approves a stock split while simultaneously announcing an 8% raise in the dividend, as Apple did, it's a stronger signal than one of those moves in isolation.
The result? When Apple announced the split the shares traded at just over $560, or about $80 when adjusted for the split. They are now up over 23% trading around $93 as I write this. That's a pretty solid result. People are now watching for Apple to cross $100. In fact if Apple hits $101 it would be a new all time high for the company's shares.
You could argue that Apple's board just got lucky on the timing. But I have a feeling the board is made up of smart folks who understood the potential for Apple's expansion plans. Those plans included Beats and everything they announced recently at WWDC. They probably include a whole lot more that we aren't yet aware of.
My question for readers: Even though you logically understand that Apple's shares are not financially cheaper than they used to be (they're actually more expensive now), are you more tempted to buy them simply because of the reduced per-share price?
Reader comments
Does the 7:1 split tempt you to buy more AAPL stock?
i would hope that most of us are smart enough to realize that buying and selling of individual stocks is usually not the best move for individual investors
It does give me a feel in my mind that I have more number of shares for the same money invested. I am considering a serious investment now.
I am definitely a stock virgin, but have always wanted to get some AAPL stock. Now that it's affordable, is there anything I should know, or stay away from? Munale seems to think it would be a bad idea for me to but a few shares. Are there specific firms (or whatever they would be called in the stock world) that are better suited to deal with people like me? Or is there a place online I can go where I could purchase them, myself?
*buy a few shares.
@arin.failing - I worked in equities for 6 years, just went back to MBA (finishing now) and just want to clarify to you and all about 7:1 split, please do not see AAPL in anyway as more "affordable" than it was at $650. It is literally the same exact value just at a difference price. Happy to explain more. Also, I own apple and have for a while but I go in and out. One of the few stocks I know well and have been successful trading. I still own the stock but I bought it again when it was $400 range and held until today (now its $650+).
I'd be wary of suggesting you buy apple if you don't understand P/E ratios and natural market trends. And it requires a lot of dedication to follow the stock/company and know when it will turn. This takes experience...and if you want to try then yes you can use fewer dollars to test it out.
I use Schwab. But the other big names will trade just the same at lower price. I pay $8 per trade and I think it is worth it right now for their services, app, and basic research. But yes, that is $8 each way or $16 so if you buy 1 share of apple right now...realize you will lose $16 on trade so isn't much upside.
Finally. I like apple, low P/E ratio, cheap, incredible brand, I disagree that iPhone will sales will decline but agree that growth is slowing. And stock usually trades ahead of launches and sells off at launch. So feel free to buy now and sell just before next announcement for a trade.
Buy after announcements, sell before announcements. :) AAPL's got a habit of ramping up before announcements/earnings calls and then dropping a lot afterwards. In general of course.
I'd say buy an index fund. Do some reading and come back to individual stock picking when you're a bit more informed and comfortable. But that's just me. I used to invest for myself a lot and did pretty well but early on I made some poor based on pretty much no thought process at all. You know? Buying because i heard a name on cnbc but not because i'd evaluated the company in any meaningful way. I read many books but two stood out for me: classic and one that really surprised me. I'd recommend "The Intelligent Investor" by Benjamin Graham. That's a classic and a good foundation. And one that surprised me was actually Jim Cramer's "Sane Investing in an Insane World." The guy is a bit of a blowhard, he screams on tv, but the book is fundamentally sound. It's the basics and it's written specifically for a guy sitting at home trying to manage his own money. In fact as a beginner i probably would have benefited from reading that first. But it had basic stuff investors already know, like for a good company a correction can be a time to buy more shares not freak out and be fearful because the stock dropped a few percentage points. Or, how to judge when to take profits (sell), how have the courage to dump losers, diversification, why you probably shouldn't be holding a ton of different stocks unless you're really a professional. Anyways good luck.
The current dollar value is around the same it was in Jan 2008, when I was considering adding AAPL to my portfolio. I did not buy any in Jan 2008, but waited it almost doubled before buying.
Just a dollar value it is tempting to add more to my current position, but actual value not so tempting.
This does not compare at all to 2008 when iPhone was just getting started. Just make sure you know that. Law of large numbers definitely applies to Apple now and it is more about P/E ratio and growth prospects than other factors. Hopefully they come up with another iPhone but seems unlikely. I think they keep building ecosystem and making other great devices...but nothing like the iPhone. This is my opinion. But yeah, you should be looking at apple as almost $700 when you see it at $94...in terms of actual value. BUT as this thread suggests some people don't care and will buy regardless.
When I started investing I looked at the Birkshire Hathaway Class A stock. It was at the time $100,000 per share. It iddn't start at that price in 1980 it was $290-300 a share. This was a good lesson for me that investing was a long-term game. Apple also at one point in the 90s the shares were $35/share. So because I think Apple's shares over time will be going up I bought more shares, but I bought it before the stock split. There are people who are interested in Apple shares but at $6-700 they can't or wouldn't buy shares. Once it hit $80-90 they would buy a few shares and so I wanted to get in before that rush drove the share price. I also bought before WWDC because I knew based on what was announced there would be investors jumping in at that point. Now looking at what was announced I think this year is going to be a big upgrade year for Apple. When the iPhone 6 is released the iPhone 5s will go to $99 as usual and that will give a lot of users with old iPhones a chance to upgrade. If the iPhone 6 has the bigger screen as it looks like it will that will be a big selling point. Then some of the new features in iOS 8 I think will push a lot of people to upgrade the OS and push another small set of people to upgrade their hardware. This is all short-term but if Apple has a monumental couple qaurters and that's not even thinking about any changes to the Apple TV or this rumored iWatch business it's going to push the shares higher.
Buy on the rumor sell on the news. AAPL actually sold off a bit after WWDC. Be wary of buying ahead of launches. Bigger questions, can they keep/expand growth and can they expand trading multiple. These will play larger role in performance of stock, my belief. And I will happily buy an updated Apple TV.
As you pointed out, the stock splitting is meaningless to the value of your investment. What I wonder is how much longer apple can ride the wave Steve Jobs started for them. Apple has not introduced a new product category since the Ipad. Is the Iwatch going to be that big? Growth is the key metric now, and I just don't know where it is going to come from. Especially with the increased competition in the smartphone and tablet markets.
Personally, i think that's part of why they bought beats. It's a new and truly noncompetitive product that's already profitable. They could continue to sell head phones but what about offering something like a speaker system that can airplay throughout your house sort of like sonos? maybe a wireless speaker system with airplay integrate? I don't know for certain i'm just thinking.
personally, I think Tim Cook is doing exactly what he should for Apple as CEO. Tim is no Jobs (clearly) as Jobs could do a lot of roles. Tim is hiring very strong people to fill those roles. I think those key hires are very good and I really like Craig Federighi right now. I think Iovine, Angela, etc will be able to play their role where Tim Cook can't and where Steve Jobs did. Takes a long time to move a huge ship. But yes, I would love to see hardware come out of apple again....but i did the software so far.
Bought 4 shares at $592 ($84.50 equivalent pre-split). Currently, the now 28 shares are at $94 (post-split). That's a $264 profit from my initial purchase from a month ago. Apple stock, I think, will fluctuate thru the summer, but will go over $100/share after the iPhone6 announcement (IMHO).
And, yes, I may buy a few more shares before it reaches the $100+ level. And this is not a buy&sell thing. This is a long-term investment thing for me.
No. No more than i'd otherwise buy. It's one thing if you only have $100 and the split takes it to $90. Well then you couldn't afford to get in and now you can. But I have more than $600 to invest. Hypothetically, if i have $100k to invest and feel i want say 20% of my portfolio in Apple because i've decided it is undervalued. Well, i'm buying $20,000 dollars worth of Apple. Whether it's at $90 or $600 it makes no difference. The value proposition doesn't change. But again if you only have $100 max to put in a single stock well a split allows you to invest in Apple.