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Apple Stock Split: How It Could Matter (Video)

Apple’s upcoming stock split should not matter much for value creation, but it can have a psychological impact on the market. Here’s how else the split might be relevant to investors.

Apple is about a week and a half away from its previously announced 4-to-1 split. If share prices remain the same between now and then, each of them will turn into four at a price of about $117 apiece.

CEO Tim Cook and the executive team justified the decision on the most recent earnings day as follows:

Apple’s stock split matters… very little

The financial media channels’ fascination with the stock split has become a bit of a running joke. I have used the pizza analogy to explain how little it matters, in theory: do you have more pizza by cutting it into more slices? Would you pay more for pizza that is cut in 16 slices rather than eight or four?

For one, the official rationale behind the split has become obsolete in today’s market environment. Several top-tier brokers in the US already offer fractional share ownership. This means that individual investors can own a tiny piece of Apple’s equity today for not much more than pocket change, rather than the $470 that it cost to buy one full share.

But there are two scenarios in which the split may actually matter to stock investors:

  • Sentiment: at the end of the day, the stock market is a… market. The value of Apple shares is not defined in a textbook, but determined by market participants and their buy and sell orders. If enough people think (with their pockets) that the split adds value to a company’s equity, then it does. Think of Tesla shares, and how they gained a whopping 13% the day after a 5-to-1 split was announced, on August 11.
  • Index investing: equity investors who choose not to be stock pickers tend to place money into index funds, like ETFs that track the S&P 500 or the Nasdaq 100. If the index of choice is the Dow 30, which is not market-cap weighted, Apple’s stock split matters. The index’s exposure to Apple will drop by a factor of four, starting in September. Dow 30 investors should know that their returns will depend much less on Apple’s performance going forward.

Watch the video above for more on Apple’s stock split, including my estimate of the Dow 30’s performance had Apple decided to split its stock a few months earlier.

Read more from the Apple Maven:

Apple Music 1: Where The Puck Is Going (Video)

Apple’s Service Bundle: A Surprising First Step

Warren Buffett’s Bet On Apple: As Good As Gold

(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)