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Following the split of high-value Apple and Tesla stocks on Monday, should traders be worried about their investments? What is the significance of stock-splitting, and why is it done at this time with these two particular stocks? Fortunately, concerns are not only unwarranted, but your stock investment may be boosted for a short time.
Apple and Tesla Stock-Splitting Explained
Relatively recently, some of the most popular trading apps have introduced fractional shares in the portfolio of their stock trading services. Fractional shares represent a great way to own high-valued stocks for traders with the shallowest pockets. Therefore, they are another important step toward democratizing the world of finance.
However, companies themselves can decide to split their stock shares so that they are available to a greater number of people. This had happened with two stocks that have been catching the public spotlight with their steady and impressive growth:
- Apple (AAPL), with its total combined value of shares breaking the record over $2 trillion in August. Each stock was split into 4 fractions.
- Tesla (TSLA), with its total combined value of shares reaching over $400 billion. Each stock was split into 5 fractions.
After the stock-splitting of these high-tech companies, a greater number of shares is available for people to buy at a lower cost. As this is the opposite of reverse stock-splitting, it is easy to frame stock-splitting as something that is for the good of the people, but is there more to it than that?
The Purpose of Stock-Splitting
According to Douglas Boneparth, president of Bone Fide Wealth in NY, stock-splitting of this magnitude has more to do with maintaining the momentum of the stock rise than anything else.
“This was done as a marketing tool to get smaller investors to invest in the stock,”
Outside of that, your investment is safe. In fact, this move by Apple and Tesla will likely boost their stocks further, to the delight of investors who have already bought their stocks. If we take a look into past stock splits, the last time Apple split its stocks, in 2014, it boosted their value by 40% during the year.
Still, you cannot count on that to always be the case as Apple’s stock split in the year 2000 resulted in a 60% devaluation. Nonetheless, the state of stock markets in 2000 and 2020 is vastly different, with entirely new demographics accessing the stock market thanks to apps like Robinhood and Fidelity.
Takeaway on Tesla and Apple Stock Splits
In the end, the performance of Apple and Tesla will be determined by the fundamentals of their business models and the overall state of the economy, i.e. the buying power of the average consumer.
Right now, new Apple and Tesla investors would buy one-fourth and one-fifth of the previous value contained in a single stock. Just as you could’ve done with fractional shares.
Therefore, this doesn’t mean that people should rush to buy Tesla and Apple stocks simply because they are cheaper per share. All the companies’ mechanics and valuations considered for analyzing a stock remain the same as they were prior to stock-splitting.
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Do you think this will prove to be a boon for short-sellers, as new investors take the marketing bait and flock to Tesla and Apple Stocks? Let us know in the comments below.