Yesterday, Google announced they will be doing a 20:1 stock split in July! Investors who own Google stock on July 1st, 2022 will receive 19 extra shares on July 15th for each share that they owned on July 1st. Share prices will be cut by 20X to account for the split.
As shown in the graphic, this doesn’t impact the total investment value of the Google holdings. It’s like buying a cake, then cutting it into 20 slices. You don’t have more or less cake. You don’t get more or less frosting or calories. It just makes the individual slices a little more manageable to handle.
Why are they doing this? Companies generally like their stock to trade at a reasonable number. That’s generally between $10 and $500 per share or so. If one share of stock is more than that, it becomes logistically difficult for retail investors to invest in the company. If it becomes much less than $10, then just a penny change in the share price could have massive implications to the market value of the company. (This is one reason “penny stocks” are so risky/volatile)
What should you do about this? Nothing. This doesn’t mean Google is going to go up in value. It doesn’t mean Google is going to go down in value. You can’t get in right before/during/after the split to get an especially good deal or make a quick buck. It literally has nothing to do with the value of the company. It’s purely a bookkeeping adjustment to make share prices more manageable to trade.
It’s nice to be aware of how these things work (in case you happen to notice the share price of Google drop from $3,000 to $150 overnight) but as always, ignore any of the hype surrounding this. You may hear from TikTok day traders about how they’re gonna leverage this to turn a profit. That’s nonsense. Might as well go to Vegas with that strategy. If you want to get rich, act like an investor, not a speculator. Buy and hold for decades. Let time and the growth and profits of owning companies make you rich.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Jeremy
via Instagram
