How To Trade a Stock Split | Podcast Episode #464

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Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trading the Stock Market and today’s episode we’re going to talk about stock splits.

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There’s a lot of misconceptions as it pertains to stock splits. And today’s e-mail comes from a guy that has been the show numerous times in the past, always provides good questions. And so I’m always excited about taking his questions for this podcast.

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He’s always gone by the name Buck because I don’t use people’s real names, I don’t use their real identities. So I always give them a usually a Florida redneck name or a southern name, something that that has a little pizzazz to it.

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So in this case, we’ve just always called this guy Buck. Buck writes.

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Hey Ryan, I would like to know your take on Ford stock splits and 2022. I bought Amazon before their stock split with visions of holding them long term and accumulating massive gains.

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Well, the entire market began selling off and post split Amazon dipped to about $60.00 per share.

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I became scared that I had made a bad investment and sold for a loss, completely abandoning my long term mindset.

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Fast forward to today and I would have been up quite a bit earlier this year when Walmart announced a stock split.

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I thought that maybe I should play it safe and buy it after the split in case the stock dipped. Walmart split to about $55 and never dipped.

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Now it’s hovering close to $100. Chipotle had a similar reaction, but to a lesser extent.

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One thing I think I can conclude here is that it comes down to market conditions. Are we in a bull market or a bear market?

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And a bull market, it doesn’t really matter when you buy. And in a bear market, it might be better to wait.

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What do you think? Tractor Supply recently announced the five to one stock split.

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I think it would be a great dividend growth stock to hold long term. But now I’m in the mindset of wondering if I should buy pre or post split.

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Considering we’re currently in a bull market, it probably doesn’t matter. Now I know that whatever I decide, I’m buying for the long term and I’m not touching it for at least 10 years.

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So how do you view Ford stock splits?

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Have you had any experience buying shares of a stock pre or post split and how did you handle those situations?

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I know if I’m already on in the stock or own the stock and the company decides to do a Ford stock split, then I’m pretty happy about owning more shares.

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Thanks for all that you do and for the information that you’ve provided for us over the years. I hope you and your family have a Merry Christmas and a Happy New Year.

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Sincerely, Buck. OK.

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So I think there’s a lot of emphasis being placed on the stock splits here. And I don’t think the stock splits and I’m not I’m not calling out Buck here.

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I I think it goes in general for people, I think there’s maybe a little bit too much emphasis that goes into stock splits.

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I don’t think the stock splits are all that important. I know that there’s often times a reaction to it.

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We’ve seen it in the past where a company will announce a stock split and just people go go crazy and, and they Yolo their, their savings into the stock.

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If you’re in it and they do a stock split, great. You know, just like what Buck said, if you get the stock split while you’re already in the trade,

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that’s great. There’s no reason for me to buy or sell based off of the stock split.

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So there’s a a lot of false beliefs too that comes with stock splits. A lot of people that think that and, and you saw this really at the peak during 2021 when we had the

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Wall Street bets mania going on where people were buying in GME and people and, and GME was doing a stock split and you were seeing a lot of the WSB stocks doing stock splits.

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They try to entice people more to get into these stocks even more. But some of the false conceptions and some of it sounds silly is that people think they’re actually

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getting free money. So if a stock does a 12:50 stock split, they think they’re getting 10 times the shares and they’re

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not really seeing a reduction in price. Some of my most popular videos that I did on YouTube was during that time and they were very

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contentious videos because I tried to create this, this video of A and, and I used the pie as an illustration.

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I went to Costco, I got the pie. I took this big old like, you know, Freddy Krueger, Michael Myers knife and I cut it in half and I

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say, look, I just split the pie and to a whole bunch of pieces into 10 separate pieces. It’s still the same pie.

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It’s just been cut. It’s been divvied up some.

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You didn’t increase the size of the pie at all. The pie didn’t grow.

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It’s just been cut up. And I think a lot of times people forget that they see the fact that they own more shares of the

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stock as being like they’ve increased their ownership or they they have more money in the stock, but they don’t.

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And so a lot of people were buying the stocks in 2021 because remember, we were, we were in the whole shutdown.

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People were bored. They were flocking to the stock market.

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They’d had no sports to watch. They were seeing other people get into the stock market and they thought that they had to do it, but

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they didn’t have any understanding. So they think that the the Wall Street, it was a crazy time, but they really thought that these

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companies that were announcing the stock splits, that Wall Street was just handing them free money. And so they were buying into it.

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They’re like, Hey, if you want to, you know, quadruple your money or, or 10X your money, go buy stock XY and Z that’s splitting right now and you’ll, you’ll do that because they’re handing out

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free shares. And it was, it was absolutely crazy.

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I was getting into arguments with people telling me that I was an idiot, that I didn’t know what I was talking about, that I had FUD.

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I still don’t know what that actually means. By the way, I, I think I looked it up one time and I forgot what it means, but they really just

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ridiculed me ruthlessly. I’m like, I don’t even know how I’m in an argument about this.

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This is one of the dumbest things I think I’ve ever been in an argument about. Like how, how is this what people are getting on to me about something that they don’t even realize

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is completely false and so elementary. But that was, that was the height of the, the, the stock split mania during 2021.

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I mean, Wall Street knew exactly what they were doing. They were conning all these people to, to jump into these stocks just because they were doing a

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stock split and it really didn’t do anything. And I think there’s still some of that mentality still to the state.

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People get overly excited. I mean, I remember when Apple and Tesla, they split.

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I mean, people really thought they were getting free shares and they weren’t. They weren’t getting anything else.

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It’s just more shares at a reduced price. So you get a Ford stock split, they’re they’re reducing the price of the shares.

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So if let’s say it’s a 2 to one, that’s usually like the most basic 1. You get a 2 to one, they’re cutting the value of the stock in half and they’re doubling, doubling

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your shares just like that. So you times the number of shares by two, you divide the the share price by two.

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So Apple, Tesla, they thought a lot of people thought it was free money GME when they did their stock split.

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Oh my gosh, people were losing their minds. So the whole idea in theory is to when they do a stock split is to make it the stock more appealing

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really for retail investors. I don’t think Wall Street really cares what the share price actually is.

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Personally, for me, I could care less what the share price is. And that’s not because I’m like, you know, big money Ryan, that that’s definitely not the case.

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But I just don’t see that there’s any intrinsic value that’s attached to the share price. As long as I can buy 3 shares of the stock, I can take partial profits, you know, in thirds along

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the way. That’s really all I care about.

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You know, I don’t want to be getting into like Berkshire Hathaway. If we’re, you know, you can’t take partial profits that heck, you can’t even hardly buy a, a, a

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share of that thing. I mean, it trades at like $685,000.

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I mean, could you imagine trying to trade that stock and that that’s really one of the perfect examples of why there is stocks with now.

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Berkshire Hathaway’s never done that. I don’t know if they’re trying to get the share price up to $1,000,000 or what before Buffett

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finally kicks the butt bucket, but try saying that a few times in a row. But you can’t.

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I’ve never heard of anybody day trading Berkshire Hathaway. The Phils alone would be absolutely madding.

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I mean, today alone it was up $9000 a share the the bid ask. I mean, could you imagine trying to get into that stock and just because you had a bad fill, I mean,

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you better be using limit orders on that one. You get a bad fill.

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It cost you 10s of thousands of dollars potentially. I mean that that’s in my opinion, that is no way to trade.

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There’s no way you would ever, ever, ever get me to to trade Berkshire Hathaway. I don’t think anybody does.

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I mean, it’s not a unique position by me that I’m taking there. That’s just common sense.

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But if they did like I think for Berkshire Hathaway, you’d probably have to do like a 10,000 to one split to get it like down to what it’s like $68 a share.

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He did that. A lot of people would be buying it.

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It would attract a ton from retail. But Warren Buffett doesn’t want that.

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He wants serious investors only. He wants long term serious mining investors.

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He’s always thought that people should have a punch card in terms of how many stocks that they could buy in their lifetime.

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And he felt, always felt that if people approach trading in that method, that they would be much more particular about what they invested in and that they’d be much more long term.

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He’s very long term centric. But if they did do a stock split, it would open up a whole other class of investors for war above.

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It probably improved in that particular case, probably would improve the, the share price some because I don’t I, I don’t know if I’ve ever actually met somebody that owns a full share of

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Berkshire Hathaway. I don’t know if you can buy fractions of it before I got to assume that maybe companies like

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Fidelity would not let you do that. I don’t know that for sure never asked it, but I could imagine like you want to buy it like $10

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worth of Berkshire Hathaway. Let’s let’s see what the I should try that as an experiment.

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See what see what happens if it’ll actually let you do it or not. That would be, that would be hilarious if it, if it actually did that because I don’t think you

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could, but what do I know? So you take CME or CMG Chipotle, they actually did a stock split.

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It was trading at some wild $3000 a share, which when you think about Chipotle, you think, you know, like cheap food, it’s 1015 bucks to, to get in and get out of there.

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And then their stock is trading at $3000. And so a lot of people view that as expensive, especially when you’re considering that it’s a fast

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food restaurant. Like what, why, why is that stock so expensive?

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But the, the, the price of the stock really has no by itself has no meaning in terms of whether or not stocks expensive or not.

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People will see a stock that’s trading at $3000 and say, oh, that’s expensive because it’s $3000 a share.

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I can only buy one share. But in the end, it doesn’t really matter about the number of shares that you buy.

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The number of shares you buy means nothing. Like I said before, as long as I can buy like three of them, then I can do, you know, partial

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profits on it. That’s really all I care about.

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And so I’ve never really had to think about that too much. But, but in the case of like a stock where it’s, it’s trading at a very high price, that could be an

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issue. So with, with with CMCMG, people are thinking that, OK, it’s too expensive.

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But really whether or not a stock is expensive, you could have a $10 stock that’s more expensive than a $3000 stock because from a fundamental standpoint, it’s much more expensive.

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You’re paying for a for more for the earnings. Like if you bought PLTR right now, PLTR is trading at some 385 times its earnings.

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That’s expensive. That’s three times more expensive than Tesla right now, which is also insanely expensive at 129

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times its earnings. So you take a look at both of those.

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PLTR is more expensive than than Tesla by three X. So you have to look it through that lens.

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You can’t look at just oh, the share price is expensive that that’s it doesn’t work that way with stocks.

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So in that sense, if the, if the dollar price really doesn’t mean anything about it being expensive, how many shares we own at the stock doesn’t really matter either.

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It just matters how much capital we have in play. So if you have $10,000 in play, OK, it doesn’t matter if you own 1000 shares or 100 shares or three

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shares. Your, your, your exposure is the same.

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If you make 10% on a stock, it doesn’t matter if you own one share or 10 shares. What matters is how many, how much capital you had allocated to the trade.

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So I don’t think a lot of people think of it that way. They get caught up, especially some of your, your old school thinkers that, that really haven’t been

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exposed to it. They look at it like, oh, I don’t think it’s worth that much, but they’re not basing it actually on

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anything except the perception of it being expensive.

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So how do I and, and this is the question that that Buck had for me, but before I get to that, check out swingtradingthestockmarket.com

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I haven’t been talking about this much lately in the podcast. I think I forget about it some usually, but check out swingtradingthestockmarket.com

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And one of them in particular is just being able to get all my stock market research each day.

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watch list each and every day of the different stocks that I’m watching for making potential trades. Almost all my trades come from that.

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So really cool you’re supporting the podcast in the process of go to swingtradingthestockmarket.com.

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It’s a, it’s a blessing to me and I thank you guys for doing that and for those who I already have. So keeping focused because he’s asking me how do I play, how do I play these stocks when I’m

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involved in a stock that just announces a stock split? How do I play it before they do the stock split?

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How do I play it after they get into the stock split and that it’s really, there’s nothing really special to it.

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One of the things I would say is why are they doing the stock split? Usually it’s to provide more liquidity.

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Usually it’s to to to add more liquidity on a daily basis. You look at the number of shares trading in Berkshire Hathaway.

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I don’t know what the exact number is, but there it’s not a lot. But imagine if they did do a 10,001 stock split.

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How many more shares would be traded each and every day? People wouldn’t be trying to liquidate a $685,000 stock.

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They would be trying to liquidate X amount of shares of a, of a $68 stock. So that’s, that’s reason really why Chipotle did it.

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They did a 50 to one stock split and, and it’s made it much more appealing to the retail crowd for the, for some reasons that like what I’ve already said, they, they think that lower share price

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means it’s, it’s, it’s a better sale or, or that it provides better value. It doesn’t.

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It’s just, it’s a mental thing for a lot of people. They don’t want to spend $3000 on a stock.

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There’s stocks like LRCX and KLAC, they probably are long overdue for stock splits, but for whatever reason, they don’t do it.

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So if I was, if I was a public company, I’d absolutely do stock splits. I do it all the time because I know what it what it would do.

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It would bring more investors to the table, more, more retail money to want to buy into it. So from a trading standpoint though, what I do with the stock splits is I’m focused more so on why I

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got into the trade originally. So if if I’m in a trade and they announce a stock split, there’s a good chance like what we’ve seen

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over the last seven to seven years or so, especially that the stock’s going to go up in value. People are going to see that as being bullish.

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So you may get, you know, maybe you get 2 or 3% pop or maybe you even get like a 10% pop in some cases.

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That’s great. I’ll probably going to take some profits off the table on that.

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From a long term standpoint, I probably wouldn’t take profit off the table, but if I’m in it for the long term, that’s just part of the the storyline to the journey of me being in that trade or in that

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long term investment. I very rarely do I get out of it early for for a news reason, unless it’s just, you know, creating

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an opportunity that I’m not likely to duplicate down the road for myself by staying in it longer.

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So when it, when the stock split happens and I’m in the stock, don’t really care. Usually there’s, there’s nothing special to, to that happening.

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Maybe you’ll get a surge of buying the next day because the stock is actually at the lower share price than it was previous day.

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And in Buck’s case, he’s looking at Tractor Supply. They did a, a stock split, a 5 to one stock split, right?

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And he’s in it. It doesn’t really make too much of a difference.

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It provides liquidity. So that that’s a nice aspect.

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It might attract some new investors down the road, but I don’t think it makes it now all of a sudden long term bullish.

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To Buck’s point, if you’re in a bull market, things tend to respond more favorably. If you’re in a bear market, things are going to respond a little bit more negative.

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There’s going to be news in a bull market that they’ll shrug off and not care about. But then all of a sudden when you start seeing the selling, kind of like what we saw this week, all

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of a sudden everything is like sell the news. Sell the news.

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I don’t care if it’s good, I don’t care if it’s bad, sell it. So that does weigh a lot on the stock.

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Always think, man, when you’re getting a bad sell off, the worst thing that you could probably do is announce earnings on that day because they’re probably going to butcher you up even more.

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So if the markets, you know, up 2% and you announce bad earnings, yeah, you’ll probably take a, a pretty good hit, but you may not take as bad of a hit.

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Had you announced during a really bad day or a day where it’s just really slow, that can also, that can also hamper you too.

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So the other thing too is if you’re looking to get into a stock and they’re announcing the stock splits from a long term standpoint, you have all the time in the world to get into a stock.

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If you’re looking to hold it for the long term, unless it just makes a dramatic move, which doesn’t make it worth it anymore.

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But by and large, you, you have, you tend to have weeks, if not months to get into a full position. So what I like to do with my long term positions, when I’m trying, I try to build it over the long

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term. I try to build it, you know, piece by piece.

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You know, I don’t try to get all in at once. Now my swing trades, I get all in my full position right out of the gate.

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But for my long, long term positions, I’m looking to build up over a very long time. I think sometimes in the past I’ve been a little bit too slow on building up the positions to where

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like you go back to 2022, I was probably a little bit too cautious getting in because I never got quite the full positions that I wanted to, even though I did really good.

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I mean, things like Hood and DraftKings and AMD at ridiculously low 2022 prices and, and, and you know, still holding a lot of that till through today here in at the end of 2024.

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That’s great. But I would have loved to have had more of that because I never quite got to the full positions that I wanted.

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And so I think on my end, I could probably be a little bit more aggressive on building my long term positions, whereas I think of most people, that’s not the problem.

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What what they tend to do is they’re too slow at building their positions or too fast at building positions. I’m sorry.

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So they, they take too much time to build their positions And as a result, you know, they’re not getting the best price.

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I would rather have, you know, a a decent average of where the lows was at. Then to get in and then I drops another 2030%.

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I’d rather get in. If it does drop another 2030%, I’m still adding as long as I still believe in the underlying thesis

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for why I want to be in that trade from a long term standpoint. If you enjoyed this podcast episode, and I hope you do, if you’re listening to me on YouTube, make

20:31
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20:56
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21:05
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21:07
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