So Apple Stock is Splitting – What‘s it Actually Mean for You?

Have you ever wondered what it really means when mega-companies like Apple split their stock? I‘m going to walk you through it.

Stock splits may sound complex at first. But by grasping the basics of what they are and why they happen, you‘ll understand their significant implications for everyday investors like yourself.

The 30-Second Recap on Stock Splits

Before we dive in, let‘s recap what a stock split actually is:

• A stock split is when a company divides its existing shares into more shares, at a lower price per share
• Apple has split its stock 5 times over the years, usually doubling or quadrupling investors‘ shares
• The goal is to drive up demand by making shares more affordable to buy
• A split itself has no direct impact on Apple‘s operations or fundamental value
• But splits do often boost prices by increasing liquidity, media exposure and accessibility

Now that you‘ve got the gist, let’s explore stock splits in Apple‘s case – from explanations of past splits to their short and long term outlooks for investors like you.

OK Let‘s Rewind – What Exactly is a Stock Split Again?

A stock split is a corporate action taking existing shares and splitting them into more shares at a proportional ratio. The share price adjusts lower, so existing investors have more shares at lower prices, but their total value doesn‘t change.

Think of it like exchanging a $10 bill for two $5 bills – same value, just split into smaller segments. Companies split stocks to rebalance prices they feel have gotten too expensive per share.

For example, back on June 9, 2014, Apple enacted a 7-for-1 split when shares were trading around $645. This dividend instantly gave existing shareholders 7 times more shares at 1/7th the price – around $92 per share.

But enough definitions – let‘s look at why companies actually go through the hassle of splitting their stocks in the first place.

Why Does a Behemoth Like Apple Split Its Stock?

Great question. Firstly, companies split stocks primarily to drive demand and increase what‘s called "liquidity".

Liquidity refers to how easy it is buy and sell shares at stable prices. More individual investors can afford lower-priced shares, enticing them to buy-in. Institutions also prefer splits since its easier for them to execute large batch trades without skewing prices drastically.

Increased transactions make the investment more enticing and builds market hype. This benefits the company, shareholders and potential buyers alike when prices rise post-split.

There are a few other compelling reasons driving companies like Apple to keep splitting:

• Bring the share price into more optimal trading levels to ensure stability
• Maintain accessibility for retail investors – Apple in particular strives to keep shares around $100-$200
• Signal strong past performance and confidence future growth will continue

Now that you know why Apple splits its stock, what does it actually imply for investors?

How Do Stock Splits Impact You as an Investor?

Stock splits have both short term and long term implications for shareholders and potential buyers alike.

Short Term Impact – Share Price and Trading Frenzy

In the short run immediately after announcing a split, Apple‘s share price mechanically decreases as ownership divides across more shares outstanding.

Simultaneously, volatility and trading activity often rise as pent-up retail demand pours in thanks to the lower price. This buying frenzy helps drive prices right back up at an accelerated pace.

According to SEC research, on average stocks beat the market by 16% year after announcing splits – so short term gains are highly common.

For context, check out how much Apple stock‘s price jumped percent-wise in the year following previous splits:

So history suggests your Apple shares should rise substantially in value shortly after any upcoming splits.

Long Term Impact – Broadened Investor Base

While short term pops feel nice, the most important impact of stock splits is longer term. By dividing shares, Apple massively expands its overall investor base.

• More individuals buy in thanks to greater affordability & access
• Institutions build larger positions aided by increased liquidity
• Collectively expanded investor ownership fosters stable pricing

This forms a positive cycle that allows share prices to ascend over time. Looking back, Apple stock has climbed for years following each split:

• +1,100% over the decade post 1987 2-for-1 split
• +575% over the decade post 2000 2-for-1 split
• +960% over the decade post 2005 2-for-1 split

Will Apple‘s latest 2020 4-for-1 split continue this trajectory into 2030 and beyond? If iPhone and services growth continues, more broad-based ownership could certainly drive further multibagger returns.

Now that you know the short and long term outlooks, when should you actually buy?

Strategizing When to Buy Apple Stock Around the Next Split

Determining exactly when to pull the trigger on Apple stock relative to splits depends on your investing style.

Intraday traders may attempt timing the turbulence of the days surrounding the split date itself to turn quick profits.

But for most regular investors, the longer term trajectory is more important than whether you buy the day before or after the split.

Historical data shows Apple averaging 45% above market returns in the 2 year period following splits. So buying post-split can offer strong opportunity. That said – shares tend to see gains both before and after splits, so arguments exists for buying either way.

The key is ensuring your personal timeline aligns with Apple‘s proven long-term upward trajectory. Fund your account and lock-in shares whenever you‘re able – just be prepared to hold with conviction through inevitable interim volatility, avoiding panic selling.

If you believe in Apple products dominating the next decade across hardware, software and services – then believe in Apple stock following suit.

Apple Stock Splits – Final Thoughts

I know I covered a lot of ground here on the mechanics, reasons, impacts and optimal timing around Apple stock splits.

The key points for you to takeaway are:

• Stock splits divide shares to drive demand via increased affordability, liquidity and investor base
• Apple splits its stock frequently to rebalance prices and signal enduring growth
• Previous splits have preceded both exceptional short term pops and long-term ascents

So while splits themselves don‘t alter Apple‘s foundations, don‘t fear the temporary price drops they trigger. History proves patient shareholders almost always emerge better off once the buying wave returns following splits.

Understand the models, believe in the company, fund your portfolio, and ignore the interim noise through inevitable ups and downs. Stick to this approach, and Apple‘s next stock split could unlock generational wealth for your family.

Reach out with any other questions!