MakingCentz

Snarky Thoughts on Personal Finance From a Dad of Two

Why Apple’s Planned Stock Split is a Great Thing

Shares of Apple stock may be getting more affordable.

Shares of Apple stock may be getting more affordable.

If you’re an investor, how did you get started? How did you actually reach a point where you said, “yes, I am going to put some money in the markets.”?

For many people, the introduction to investing came when they contributed to their first 401(k) plans. They may not have understood exactly what they were doing, but were told by their employers that it was a good idea to contribute.

For others, they began simply by opening an account with a discount brokerage firm and buying a few shares of a stock. If you’re getting started this way, you’re probably not starting off investing a lot of money, but you want to to invest in something you’re familiar with.

This is why I think Apple’s decision to execute a 7 for 1 stock split is a good idea.

Right now, Apple trades at $524.75. It has traded above $700. That’s a lot of money, and likely out of the price range of a new investor. 

But now, shares may trade for under $100. This means that someone can start by buying a few shares. They can get their toes wet, then maybe buy more over time as they have more money available and gain confidence in what they are doing.

Trading stocks can be intimidating at first. Pricing your shares so high sends a message that new investors are not welcome.

Defenders of high stock prices will argue that it’s better to have a smaller pool of savvy investors. Warren Buffet’s Berkshire Hathaway is perhaps the best example of a company that enjoys keeping prices high for this reason.  It trades at more than $191,000 per share!

But Apple is not Berkshire. Its business model is easy to understand, and the company would not be hurt by having a larger pool of investors.

There’s been a lot written about the great performance of the stock market in recent years, but the reality is that a large portion of America has nothing invested. A Gallup poll in January revealed that only 54 percent of Americans own a stock. That’s a record low.

A stock split can make shares of certain companies more affordable to new investors, and that’s a good thing. We should want more people getting involved investing and starting the path to building wealth.

Kudos to Apple for their split. Now can Amazon ($305 per share), Netflix ($327) and others follow suit?

Category: Investing