Stock splits are under fire because neither Apple (AAPL) shareholders nor Tesla (TSLA) shareholders seemed to benefit from Apple's four for one split, nor the five for one split from the tech company that makes cars.
To which Jimmy Chill says, of course not. It was never about existing shareholders who were supposed to benefit. These two companies want new shareholders and a split is the best way to get it.
Before we trash the split concept itself let's remember that Apple was at the equivalent of $96 when it announced the split and it is now $111 with a mistaken pit stop at $134. That's still a gain. Tesla's stock stood at $309 when the company announced the split. It vaulted to $494 before falling to $375. So both stand above the prices that they were when the companies announced the splits, so no harm no foul.
Of course investors, and I bet they were youthful investors, played the splits all wrong. Somehow I think they thought splits actually create value. That's just nuts. They create nothing, nothing at all. What they do is give more investors accessibility to their stocks, which is vital because the firm that's in control of this market right now is Robinhood. How can that be with "only" 13 million investors? I think it's because more than half of money is just indexed. I bet it is up to 60% once you include ETFs.
Now, I don't mind that. Ford has a new CEO, Jim Farley, and if he is allowed to run the company, and not be jabbed by tradition that Ford has had which is to build cars everywhere except, oddly, China, where they are barely have a presence. But Ford is way behind in electric vehicles even though it's autonomous driving experiment has real promise.
GE's got a CEO, Larry Culp, who is doing a good job under extremely challenged conditions given that his principal business is aerospace. Tough work if you can get it.
The problem for me, though, is that it can be presumed that these perennial top 10 favorites have been anointed because of their low dollar price. It certainly isn't because of Farley - he was picked well after the stock became a favorite of the youthful cohort. The stock had a high interest under its predecessor who was instrumental in the stock getting that low.
GE? Given that nobody expects this year to have any expectations because of the shocking drop in travel and leisure because of Covid-19, and because of Boeing's (BA) ongoing woes, I think that the principal attraction is its $6 price.
You can surmise from both that they are getting accumulated because they have low prices.
Which brings me back to Apple and Tesla. I have said over and over again that the common reaction among investors who get stock that has split is to sell a little, maybe one share. These stocks are so huge as part of the overall psyche of the market, that as they ran, the market ran. As they collapsed, the market collapsed. I don't think it is a coincidence.
What these foolish buyers off the split didn't realize is that the new price brings in shareholders who, judging by what's liked by Robinhood, like the lower prices.
Given, again, that splits create no value the dumb investors who ran it up took losses - realized or otherwise - but the new buyers? They got great prices, exactly as I predicted.
What I didn't predict is that pundits would then say the splits hurt the stocks, not helped them. Given that the stocks aren't even down since the announcement that's empirically wrong. More important, the stocks are now far more attractive to the cohort who would have little interest otherwise.
I think that Apple and Tesla are exhibits A and B FOR splitting. I believe that if, say Adobe (ADBE) , were to announce a split when it reports after it unveils earnings - earnings that I expect to be sharply better than expected, and people learn not to buy the run-up, it will be terrific for Adobe because new shareholders would come in.
Splits make stocks accessible to the new investors. Apple and Tesla show you why, even again, as I have said, there is no inherent new value created by them. I applaud both companies and hope that others join them to supplant, or at least offer, an alternative to the less- than- solid stories they currently are routinely, and wrongly, drawn to almost solely because of price.
Oh, and one more point, Apple and Tesla? Now number one and two, in terms of interest from the Robinhood gang.