Good morning, I want to create a quick voice note, purely because i’ve been having a lot of questions directed to me related to the Apple stock split.
So I understand maybe a lot of new investors with maybe not went through a stock split before. So kind of break it down and give you a bit the rationale and kind of push away any misconceptions that you may have.
So firstly, if you're basing your decision to buy or not buy Apple shares, purely on the fact there is a stock split coming, then I would stop what you're doing and think to yourself, are you being rational? So in a stock split, I always say it doesn't really change anything, especially nowadays. It doesn't have any material impact on the valuation of the business or the underlying fundamentals. It's basically just restructuring the outstanding shares and altering the share price and the dividend and stuff like that. So Apple is splitting four to one. So for every one share you in Apple that you hold before the date, I think it's effective on August 31, and the split maybe happens a few days before that, I'm not super sure but essentially, for every one share your hold, Apple will give you three more, and then the price will be divided by four.
So let's just say the price is 400 right now, dollars, then after the split, it will be 100. And you have four times as many shares. So you need to kind of think about this rationally, nothing changes in the business just because you have more shares, you don't own any more or larger portion of the business.
If you had 0.01% stake in the business, that's not going to change just because the splitting shares, they're actually increasing the share amount by a number of multiples for and then dividing the share price by four, you won't get paid any more dividends, the dividend right now is, I believe 82 cents per share, they'll get divided by four as well be something in the 20s.
The only impact I could imagine that stock split may have is a psychological one. So you have people that maybe don't have as much capital that would like to buy a whole share an apple for four hundred dollars, maybe quite expensive, so you might get smaller retail investors buying shares.
But with fractional shares nowadays, and with retail traders, mainly being the investors that use fractional shares, I don't see that being that significant and impact of this kind of effect.
Prior to fractional shares, retail investors couldn't buy a stock if it was too expensive.
I know a lot of people that have have less than 1000 pounds but hold a tiny piece of Amazon.
Yeah, I'm not going to debate fractional shares.
But basically, the liquidity is usually a factor. Usually sometimes there's a bit more liquidity in the stock for the first few days of the split, with people buying it now that it's more accessible, but I feel like apple, for one was somewhat accessible anyway.
And for retail traders that wanted a slice of Apple, they could just buy into an ETF or they could just buy into fractional shares and own a little piece.
There's been a lot of misconceptions, someone reached out to me and said, basically, I hold $8,000 worth of apple. When the split happens. Do you think it will rise up to $200 per share like it did last time during the last split? And I never really know what to say to that.
Basically what you're asking me is: “I hold $8,000 an apple, do you think the market cap can double for no reason just because of the stock split?”
That's not gonna happen.
It may happen eventually further down the line as the business grows, and they continue to improve earnings and the market attributes a higher valuation. But in the meantime, because there's a stock split, the share price isn't gonna split to 100, and then rapidly inclined to 200 has the same as asking me if I think the share price is going to go to 800 based on the current price in a short period of time.
So it's best to think about stock splits is really not having any impact.
If you assume there's going to be some impact and try and make a play from that then, yeah.
You might get hurt in the longer run.
In terms of Apple valuation right now, I'm hesitant to say.
It feels like they're being priced more like software, as opposed to hardware. If you look at 2016 services were maybe 14% of their revenue composition. Now, I believe in this quarter. It's just over 20. And for the whole year, it's about 18%. Which is nice. I'm not purchasing any more Apple right now, I do have a small stake in Apple. I would like to own more, but not at this not at this price.
Either way, I thought I just wanted to create a quick voice note to cover a few things and misconceptions about stock splits. Have a great day.
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