Apple Stock Jumps on Rumors of Stock Split at Tomorrow's Shareholder Meeting

[Dan--]

There have been words written here that imply you need GOBS of money to reasonably do your own investing. Not true.

The main thing I have noticed is that if you purchase less than $1000 of a company, the brokerage fees can be noticeably taxing. At least if you trade with any frequency. (If you buy and hold, the fee becomes inconsequential, enabling the purchase of lessor amounts). And some (all?) brokerages restrict short selling to blocks of 100. (Perhaps a legitimate reason an Apple investor may not want it to split.)

You don't need 100s of different companies for decent diversification. If I recall, Peter Lynch recommended on the order of 9-11 stocks for an individual. That would imply you need around $10K to invest.

For a while, I've wished that Apple split, not because it changes the value in any real way, but because it makes the shares a little unwieldy. You can't easily pare back your shares, or buy extra shares on a regular basis, unless your investment is fairly large. But, although many people would argue that the current price of Apple is above what is convenient, I'm not sure we've past the threshold of impractical for small investors. (I think this number is probably in the $500-$1500 range).

Oh, and using BRK.A shares as an example of what's great is a little disingenuous, as Berkshire Hathaway has offered BRK.B shares as an affordable alternative for a long time, and (somewhat) recently split to trade under $100/share.

That said, I'll also recommend index funds - it allows participating in the stock market, without making huge investment mistakes.

Dan

 

[samcraig]

No.

In Scenario 1, you would have bought 5 shares at $200 each... investing $1000. If the stock goes up $100. you now have $1,500 in value. This is all right. BUT, if your $200 per-share stocks split, your 5 shares now become 10 shares (still it cost you $1,000) only now if you add a $100 to the price, you now made $1,000 and not $500.

What you expect with a split is that the shares get cut in half, but then rebound because now they are much cheaper and more investors can buy in driving the stock back up.

If Apple splits at 450 and is worth $225 tomorrow, then worth $300 next week, it's like the stock went back up to $600 pre-split. A good thing for us all.

Help?

No that's not what I was saying.

You're talking about investing once before a split.

I'm talking about someone investing today (pre-split) vs tomorrow (post split). Same investment $1k. Different # of shares owned. Stock goes up 100 points. Scenario B nets more return.

 

[Silvereel]

I'm not singling you out. Ok ?

But I choose to not listen to armchair stock manipulators. I don't even like the way the stock market works. I go by gut instinct and it has never let me down before. I have no idea if Apple will split or not. Nor do I really care all that much.

With that. Carry on folks!!

Rest assured that I'm not a fan of manipulation. If the market would just judge everything on fundamentals, I would be wealthy by now. But that makes too much sense, doesn't it? Kind of like politics.

 

[Dan--]

No that's not what I was saying.

You're talking about investing once before a split.

I'm talking about someone investing today (pre-split) vs tomorrow (post split). Same investment $1k. Different # of shares owned. Stock goes up 100 points. Scenario B nets more return.

In your artificial scenario, you're right. But the scenarios aren't equivalent.

In the real world, the stock would go up 100 points if done on pre-split prices, and would go up only 50 points in post split prices. That would be equivalent.

 

[gr8tfly]

No that's not what I was saying.

You're talking about investing once before a split.

I'm talking about someone investing today (pre-split) vs tomorrow (post split). Same investment $1k. Different # of shares owned. Stock goes up 100 points. Scenario B nets more return.

I'm no expert by any means, but scenario B is not likely to happen. It's percentage - if the same sentiment which would have driven up the stock by 100 pts pre-split happened post-split, it's more likely to end up a 50 pts increase.

 

[phillipduran]

Well if I'm in to make a quick profit - doesn't it make sense to get more excited about a lower entry point (post split) vs buying less shares.


Again - not talking percentages. I am talking when the stock upticks 100 points in both scenarios.
I'm not saying *I* am - I'm posing the scenario so people can understand why some people might care (or not) about the split/buying in at a lower point.

Yes, a 100 point uptick when you own twice the shares is better. That's the math of it.

Do you realize that moving 100 points in scenario 2 might be twice the effort? Twice the buyers and sellers? To go up 100 points in scenario one might be 100,000 transactions. It might take 200,000 transactions to do the same thing in scenario 2. Where are you getting the 100,000 additional buyers and sellers? A stock split doesn't automatically double the number of daily buyers and sellers.

Disclimer: I might be totally wrong but this is what I understand from my limited knowledge of stocks and trading.

 

[Dan--]

No that's not what I was saying.

You're talking about investing once before a split.

I'm talking about someone investing today (pre-split) vs tomorrow (post split). Same investment $1k. Different # of shares owned. Stock goes up 100 points. Scenario B nets more return.

Perhaps I misinterpreted your assumption. Do you realize that in either case, both investors will own the same number of shares at the same price?

When you buy pre-split, and the stock splits 2-for-1, 2 things happen:

1. Individual price of a share is cut by a factor of 2
2. The number of shares owned by each investor is doubled.

So, you would then own twice as many shares worth half as much each.

When you buy after the split, you get what you get.

----------

One more pizza analogy to add...

If you had one regular sized slice of pizza, and someone were to agree to supply pepperoni to cover it. It wouldn't change how much pepperoni you'd get if you cut your slice into 2 pieces first.

 

[somethingelsefl]

An Apple split? I thought it was a banana split.

I'll be here all week, folks.

 

[m0ssie]

I've never understood this reasoning. Price per share should be close to last on the list when considering buying stock. Price per share doesn't give you any indication that the stock is priced too cheap, or too high, EPS & PE ratios are better measures.

When I invest, I pay little attention to the PPS. I figure out the amount of money I want to invest in a company, then simply divide that by the PPS to see how many shares I need to buy. I don't care if it works out to 1 share, 100 shares, or 1,000 shares.

Normally the higher the PPS, the better value the stock is, and the lower the PPS the worse the value of the stock is. It's exactly opposite the way most think. Now if one can't afford to invest at least $450 in apple, then the share price would be too high. But then if one doesn't have $450 to invest, it's doesn't matter much anyway.

Some people can't afford $450-$700 a share as an investment.

$200-$300 is more reachable for those wanting to invest and don't have a lot of money.

The last I heard Apple was a publicly traded company.

 

[RonDMC]

Doug Kass should be locked up, most blatant manipulation ever

6:48 PM - 26 Feb 13
High above the Alps my Gnome is hearing a rumor that Apple will announce a stock split at tomorrow's shareholder meeting. $AAPL

7:19 PM - 26 Feb 13
Apple is now trading near $449, up from the day's low at $437.65. Prudence dictates that I sell off some of this outsized position $AAPL

8:04 PM - 26 Feb 13
Apple continues to climb - now up by over $8. I continue to pare back as the rumor seems to be baseless based on current share authorization


So to summarize, I bought some shares in AAPL, made up a rumor about a stock split, called the rumor I made up baseless, sold my shares at a profit. Happy Days!

 

[Rogifan]

Doug Kass should be locked up, most blatant manipulation ever

Kass has admitted as much. Back when the stock was riding high he was out there spreading FUD to drive it down and then when it got into the lower 400s he was out there saying it was a good buy.

 

[Ryth]

Doug Kass should be locked up, most blatant manipulation ever

6:48 PM - 26 Feb 13
High above the Alps my Gnome is hearing a rumor that Apple will announce a stock split at tomorrow's shareholder meeting. $AAPL

7:19 PM - 26 Feb 13
Apple is now trading near $449, up from the day's low at $437.65. Prudence dictates that I sell off some of this outsized position $AAPL

8:04 PM - 26 Feb 13
Apple continues to climb - now up by over $8. I continue to pare back as the rumor seems to be baseless based on current share authorization


So to summarize, I bought some shares in AAPL, made up a rumor about a stock split, called the rumor I made up baseless, sold my shares at a profit. Happy Days!

Key word is rumor. People need to not listen to him. It's obvious why he did it.

 

[cxny]

No value for shareholders here but it might encourage a short term bump. It's late in the game for AAPL future earnings are priced in already.

 

[NakedPaulToast]

Historically, Apple has split three times, all 2:1.

Had Apple not split in the past each share would now be worth $3,600.

A single share price of $3600 makes buying Apple prohibitive for some investors, especially if they want some diversity in their portfolio.

 

[Chupa Chupa]

It is because, many investors are priced out of the market at current levels. There are quite a few M&P investors that would love to own 100 shares of Apple, however, they can't afford to purchase them without overweighting themselves on one stock.

Please don't talk down to me. I understand investing apparently more than you. No one is getting priced out of the market. A share of Apple at $400 is worth as much as two shares at $200. A split is a mere illusion that it's less expensive to the uninitiated. They go rushing in as-if the stock is on sale, but it's not; it's proportionally the same price, and the market and company values remain unchanged.

Therefore, if Apple goes up 5% one day, it's going up 5%, whether it's $400 pre-split, or $200 post-split (assume 2:1). An investor that believes in a stocks value buys the $ amount he can afford and doesn't put any importance to how many shares that buys because % gain is the objective. 100 shares is an arbitrary # now with electronic trading. It's very easy, and there is no penalty anymore, to buy odd lots.

 

[Krazy Bill]

If a $6 "jump" is all that happens after a rumor of a stock split I'd dump them all.

 

[Avatar74]

You don't need 100s of different companies for decent diversification. If I recall, Peter Lynch recommended on the order of 9-11 stocks for an individual. That would imply you need around $10K to invest.

Not safely and securely. If you have $10,000 and you split it on lots of 100 shares, across 11 securities, that means your average share price is $9.

At that price, a move of $1 on any given security causes a 1% shift in your portfolio. A move of 10 cents on all securities in that portfolio exposes you to equal risk. These so-called penny stocks carry immense risk and it'd be wiser to put that $10,000 in an index fund (a move you encouraged later in your post)... because if you've managed to save only $10,000 there's a good probability that you're not going to outperform the long term compounded annual average of the S&P (9.3%).

It's true that one doesn't really need more than 10-12 securities to be reasonably diversified (depending on the nature of the operations of those individual companies) but if you set your bar at $100 per share* in 11 even lots of 100 shares, that puts your minimum bar just over $100,000 for a portfolio, not including the 20% or so you should keep in fixed yields and/or cash. The other way around this, of course, is an index fund.

* assuming mid to large cap companies that are fairly stable operating cash generators and, here's the key, aren't overpriced relative to their operating value. That will narrow the list down and exclude a lot of puffed up tech stocks that carry significant volatility risk even at prices above $100 per share.

For this reason, a $10,000 portfolio of individually chosen securities fails one or more of Graham's criteria in his definition of "investment":

An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.


Are there some exceptions to saying $100,000 as a rule? Rarely, but yes. I didn't start out with $100,000... but I'm also a business analyst with 15 years of experience and I know much more about analyzing operations than the average person. I will also state that I'm much more confident about my investment analysis ability today than when I started almost twenty years ago (with my share of early failures to learn from)... and while I produce some more than satisfactory returns, I am careful not to characterize the returns I achieve as "typical" because people would kill me if they applied only a superficial understanding of my accumulated knowledge and then wondered why "it didn't work"... I would never characterize the returns I produce today in excess of 8% as consistently achievable. I'm good, but **** could happen some day.... I've just learned how to mitigate my losses and compound my gains, and I'm exceptionally patient.

using BRK.A shares as an example of what's great is a little disingenuous, as Berkshire Hathaway has offered BRK.B shares as an affordable alternative for a long time, and (somewhat) recently split to trade under $100/share.

Berkshire Class B Common is a totally different story from a split because the price of Berkshire Class B Common are fractional/derived from Class A common, and have, consequently, the same fraction of voting power (effectively next to none).

The main motive for creating Class B shares was to dissuade speculative submarkets of fractional shares in funds that would feed the appetite of shortsighted speculators while introducing unnecessary volatility to the Class A block.

The secondary motive for doing so was to allow for the transfer of 99% of Buffett's wealth to charity without letting loose voting power onto the larger market. Every year since Buffett made the pledge, he has been converting large blocks of his Class A shares to Class B and giving them to the Gates Foundation to be sold that year under the stipulation the funds cannot be used to pay for administrative expenses and must be put toward charitable use.

 

[Chupa Chupa]

If a $6 "jump" is all that happens after a rumor of a stock split I'd dump them all.

It's just that splits are played out. They were all the rage in the 80s through the tech boom in the '00s. But the individual investor is largely out of the market now, or in ETFs where they should be. From a Fundamentals perspective -- what Wall Street cares about, nothing changes w/ a split. What it really wants is a chunk of Apple's cash pile.

 

[osaga]

Ive said it before and i'll say it again.

Stock splits always bring the wrong kind of investors in to the mix.

Do you mean 'main street' investors? Wall Street ruined the stock price, because of Technical Analysis.

http://en.wikipedia.org/wiki/Technical_analysis

 

[IJ Reilly]

Kass has admitted as much. Back when the stock was riding high he was out there spreading FUD to drive it down and then when it got into the lower 400s he was out there saying it was a good buy.

He admitted to committing a felony?

Consider me skeptical.

 

[RonDMC]

No value for shareholders here but it might encourage a short term bump. It's late in the game for AAPL future earnings are priced in already.

Incorrect. AAPL is priced at zero growth at the moment and they are still growing. Sure they are not growing like they used to but when a company gets as large as AAPL most realistic people expect growth to slow. If you look at the charts you will see the last time AAPL had a PE of 10 was back in 09 shortly before a huge rally. Historically it has sat around 15 where it deserves to be.

It is amazing how fast it has fallen from the Wall Street darling to where it is now in only 6 months. Sure it hasn't beat Wall Street expectations for three consecutive quarters but it has only missed slightly and always beat AAPL's own guidance. Does a slight miss over a few quarters mean the stock deserves to drop 40% while companies that instead of making a 400m loss only make a 200m loss rally? Seems absurd to me but that is the reality of wall street.

In regards to the stock split while I agree with others that technically it will do nothing for the stock, people seem to forget one important thing and that is the psychological factor and the workings of the human brain that you can't explain with charts, P/E ratios etc. A lot of retail investors don't want to buy a $450 stock, if they have 10k to invest in AAPL that means 22 shares, most people don't want a handful of shares in a company, if they did a 2:1 split that means 44 shares.

There is so much negative sentiment at the moment AAPL just needs some good solid news (not baseless rumors, China Mobile deal, completely new product or beat wall street expectations next quarter) and we will see AAPL rally and rally hard, if nothing is announced soon and AAPL management continue to do nothing the stock will continue to decline.

 

[JohnPhamlore]

Apple and China Mobile

There's only one announcement that would almost instantly see Apple's stock price rise a couple of hundred dollars: Apple and China Mobile reaching a deal to sell iPhones officially on that network. Unfortunately for Apple investors, don't expect this to happen any time soon regardless of how many meetings Tim Cook flies in person to have in China.

The reason is a bit of Chinese industrial policy. For Apple fans, recall Apple switched suppliers for its baseband chipsets for its phones not too many years ago, from Infineon that had been purchased by Intel to Qualcomm. That was quite a smart move as Qualcomm chipsets have come to dominate the US market, in particular since they are currently the only ones with a viable LTE baseband chipset for the US. (Qualcomm benefits from is CDMA IP that it can use to club anyone else trying to provide CDMA backwards compatibility, vital for use on Verizon.)

As was announced a few days ago, Qualcomm will start producing this year a baseband chipset that can use just about any LTE band of frequencies with backwards compatibility to a whole lot of other things. As part of China's industrial policy, China had created its own standard TD-SCDMA for the previous generation and is also pushing a version of LTE TD-LTE on for example ... you guessed it, China Mobile. And now Qualcomm's newest chipset will support all of these technologies. So now one company and one chipset to rule them, one to bind them.

Uh, not so fast. The whole point of all of these Chinese standards was to force all of the major Western companies, including Qualcomm, to transfer IP to the Chinese. In the US there has been quite a campaign against allowing the Chinese company Huawei to have access to US network and telecommunications. It is highly likely to me that China regards Qualcomm as being the US version of Huawei with similar connections to the respective military-industrial complexes.

What we have here is an impasse that won't be resolved at least until the China Mobile has its TD-LTE network up and fully running so that Chinese companies have demonstrated they can start competing for the LTE market all around the world except for the US. (What the Chinese are doing is telling companies like Ericsson who are the leaders in their fields to come in and do a demonstration project supporting both TD-LTE and the US-version LTE-FDD.)

 

[odedia]

Ehhm, a 2% "jump" is not a jump. It's just the market being the market. I had a stock yesterday that moved from down 16% to down 4%. Now, that's a "jump"!

 

[osaga]

Precisely. Scarcity increases value... Berkshire-Hathaway has not had a single stock split of their Common Class A shares since 1964... Current price? $148,362 per share. I like it that way. It keeps out the scatterbrained speculators who panic on every little tea leaf they read too much into.

Say it with me: speculation is not investing.

Scarcity increases value... for mutual funds. Because they trade above book value.

For stocks, I do think there is a psychological component (because we're dumb). The most common price for anything is $X.99.

 

[MyTurnQuips]

What does it take?

A world class leader
A PE of only around 10
And a horde of cash... I don't get it.