Understanding Stock Splits
When it comes to investing, there are many strategies that can make you money. One grossly overlooked strategy is a stock split. Stock splits are one of Wall Streets hidden secretes.
Stock splits can earn you a lot of money quickly and help you create long-term wealth. To take advantage of stock splits, all you need is a financial education.
Here’s how stock splits work.
When the board of directors of XYZ, a publicly traded company, feels the stocks price is getting too high, they will often split the stock into multiple fractions. This reduces the share price and makes them more appealing to Wall Street traders and investors. A split on a popular company will also drive up the share price faster than if they had not split the shares.
There are several types of splits. Common splits include: 2 for 1, 3 for 2 and 10 for 1. The most popular and easy to understand is the 2 for 1 stock split. Here’s how a 2 for 1 split can benefit you within a thirty-six month period.
Let’s say a company’s share price is currently $100. Retail investors like you and I tend to shy away from it’s stock in favor of a stock priced around $50 dollars. Why? Our investment dollars go further in a lower priced stock.
The board of directors of XYZ understands this. In order to make their shares more attractive, they announce a 2 for 1 stock split. For you, that means that for every one share of stock that you own pre-split, you will receive one additional share of stock.
On the split date, the price of each share will change from $100 to $50. The total value of your shares will remain the same, but you will own twice as many. If XYZ has four quarters of top line revenue growth, the shares will rise dramatically within the next thirty-six month period.
So here’s my Tyrone Jackson Wealthy Investor inside tip. Get ready.
Once a split is announced by a company you like, never buy shares pre-split. Always, always start a position or purchase additional shares post split. This is really important. If you purchase shares post split, you’ll be getting in when Wall Street institutions like banks and insurance companies invest heavily. You’ll need their participation to drive the stock price higher.
One final word of advice. Selling covered call options post split on stocks you like can help you earn thousands of extra dollars in your online trading and retirement accounts.
Here are three companies that have spit their shares at least once over the last ten years. Notice how the share prices have risen. That’s because stocks splits earn millions for educated investors.
Apple (AAPL) 10 Year Chart
Disney (DIS) 10 Year Chart