What is a Stock Split and How to Capitalize From It

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A stock split is one of the best ideas to ever enter the stock market. Without stock splits, buying one share of Apple ($AAPL) would cost you about $27,957.44, according to Business Insider. Instead, one share of Apple costs $133.38, a price people are much more willing to spend. Some people view splits as a signal to load up on shares, but others think its better to remain patient until after the split. Some take a split as a signal to stay away from a stock. Regardless of your outlook, a stock split gets everyone talking!

What Exactly is a Stock Split?

When a company deems its stock to be too high, they perform a stock split. This means they give shareholders more shares while reducing the price of the stock in relation. Last summer, Tesla did a 5-for-1 stock split. This means if someone had one share of Tesla, they now had 5 shares. At the time of Tesla’s split, the stock was about $2,300. When the split occurred it went to $460, which is just $2,300 divided by 5.

By creating this split, Tesla once again became more accessible to lower capital investors. Lots of people want to get some shares of Tesla, but $2,300 is a little too much. $460 might get more investors, and Tesla was aware of this when they made this decision. Doing this has no significant financial impact on a company or a shareholder since everything moves in relation.

Should You Buy Before or After the Split?

There is no definitive answers to this question. Recently we have seen stocks run up hard the month before their split. Although, after the split they have struggled a bit. Apple tapped $138 two days after its split, but 10 months later it is below this mark. Tesla is well over its split price, but hasn’t moved like it did the months before announcing the split. Still, both stocks are on the slow grind upwards.

The good thing about buying after the split is you can see how the stock reacts to the split. But if it shoots up, you’ve missed out on some dollars. Splitting up your planned investment in half for before and after might be your best bet.

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Which Stock Will Split Next?

A stock we have talked about extensively before is set to split very soon. The chip maker Nvidia ($NVDA) is an industry leader in a high ticket market. Click here to read about our break down on this game changing stock.

Nvidia will issue a 4-for-1 split after the market closes on July 19th. Currently Nvidia trades at almost $800, so on July 20th, shareholders will see one share costing almost $200. This will be a great opportunity to get in on an industry leader in a growing market, an opportunity that does not come often.

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