Stock Split : AAPL and TSLA
I just finished my reading on CFA L1 stock split part and recall that I loss some money on Apple’s stock split in 2020, so let’s talk about it.
To be specifically, Apple announce stock split on 7/30/2020 (concall), and split date is 8/28/2020, during the period, AAPL climbed ~32% and fell after split is finished.
So, we can dig a little bit deeper, why the hell AAPL traded up after announcement and fell after split ?
Theoretically, "Stock split” create more shares but the price will drop correspondingly to the number of shares created to make market capital stay unchanged after split. And this releases an information to market that there are more shares on market, which means more liquid. When a financial assets is more liquid, the value of it should be higher and this is investment intuition. So, after announcement stock trade higher and higher.
For example, Apple announce 4-for-1 stock split, which means each one shares split into four new shares. And the price after 8/28 market close should be adjusted to 501/4=$124.59 (8/28 are around $501, check out stock history https://finance.yahoo.com/quote/AAPL/history?p=PTON).
Then, you will find that AAPL climb a bit after the split and went down quickly, so this is kind of behavioral finance, market get the information that stock will split and liquidity of the stock will increase, so they start put this into their consideration, which reflected on stock price. We can get the same conclusion on 8/12/2020 TSLA 5-for-1 split, price traded higher during 8/12–8/31 and drop after split be executed.
Actually, I should buy before split when I decided to get some Apple’s stock, however, my trading account finished opening and allowed me trading on 8/31, when is the fk moment that Apple just finish their split haha.
