Page 107 - May 2022

“Long-term investing has proven to be a successful route to take and when companies are exceeding expectations, your investment is likely to prove beneficial.”
FINANCIAL PLANNING
STOCK SPLIT HISTORY
I want to share the history of stock splits
on a couple of well-known companies. Apple has split a total of five times since the company went public in 1980. On its IPO (Initial Public Offering) day, Apple was trading at $22 per share. If you had purchased 100 shares at
the IPO, it would’ve cost you $2,200. The company split five separate times (2-for-1, 2-for-1, 2-for-1, 7-for-1, and 4-for-1). Your 100 shares would now be 22,400 shares. Apple is trading at roughly $180 per share as I write this. Your $2,200 investment would now be worth $4,032,000. Is that any good? I like these examples because it shows the power of buy and hold investing.
Another familiar company is Home Depot. This stock has split a total of 13 times since its IPO in 1981. This calculation is much more complex because there are 5-for-4 and 3-for-2 splits. This means that instead of four shares you will have five and instead of two shares you will have three. Home Depot went public
at $12 per share. Let’s assume 100 shares were purchased at the IPO. That would be a $1,200 investment. After the 13 stock splits, your 100 shares would now be 28,476.5 shares. Doesn’t that seem crazy? The price of Home Depot today is about $305 per share. This means that your $1,200 investment would’ve grown to $8,685,351. I understand that this is a 40-year time frame, but it still shows you the power of holding investments long-term. Show me any piece of real estate that compounded $1,200 into nearly $9 million in 40 years....... I’ll wait.
With these two examples, you might get the idea that a company has to split its stock
in order for you to make money. This is false. Many of you have heard of Warren Buffett. His company is called Berkshire Hathaway and he has never split the A shares of the stock. To buy one share of Berkshire Hathaway, you would need about $520,000. Warren Buffett introduced B shares of Berkshire in 1996 when people wondered if the stock would ever split. The B shares are much more affordable as they
sit just under $350 per share. Buffett took over the company in 1965, which has led to massive success for Berkshire. For this example, I’m going to assume your grandparents invested $10,000 in Berkshire Hathaway A shares when Warren Buffett took over the company at about $20 per share. If we assume the stock is trading at $520,000, that $10,000 investment would’ve grown to $420,160,000. Isn’t that incredible? This shows you that a stock doesn’t need to split for your investment to grow. The beauty of long-term investing can create wealth that you couldn’t possibly imagine.
Stock splits are certainly an event to which you should pay attention. While a stock split won’t increase your ownership, it can be good for you as an investor. Generally speaking,
a stock split means the company is meeting quotas and generating profits. As an investor, you love to see this. Long-term investing has proven to be a successful route to take and when companies are exceeding expectations, your investment is likely to prove beneficial.
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