Growing up, I recall watching several kids shows produced or designed by Sid & Marty Kroftt. There was Land of the Lost, H.R. Pufnstuf and of course The Banana Splits, to name a few. All of them were silly shows, nevertheless entertaining for a single digit aged child.
Today, two major mega cap stocks will be splitting their shares. For every share of Tesla (TSLA), you will receive 5 shares; and for every share of Apple (AAPL) you will receive 4 shares. Of course, the share price will be adjusted to reflect the spits.
Historically, stock splits did not have any material impact upon a stock price, post-split. However, in this age of internet egalitarian investing and stocks routinely rising to prices near or well above $1,000 (pre-split), on a regular basis, I believe that there will be a positive impact to AAPL & TSLA stock prices, and hence market capitalization, on a post-split basis.
Furthermore, I expect high share priced stocks such as Alphabet (GOOG / GOOGL) and Amazon (AMZN) to soon follow suit with splits of their own.
Interestingly, the poorly devised Dow Jones Industrials (INDU) will see some significant adjustments in the wake of Apple’s split. Specifically, AAPL weight in the index will be reduced significantly. Out goes Raytheon (RTX), Exxon Mobil (XOM) and Pfizer (PFE). In comes Honeywell (HON), Salesforce.com (CRM) and Amgen (AMGN). Why was Alphabet or Amazon.com not added? Because their stock price is too high, and the Dow Jones Industrials is a price weighted index. In other words, each company is represented by one share, not by market capitalization. Hence, that is why the INDU is a defective index. Which follows why professional money managers, such as me, ignore the index for performance reporting and customer communications. I primarily use the Standard & Poor’s 500 (SPX) for performance benchmarking for our Growth and Index strategies.
Speaking of the SPX, unless there is a stock market meltdown, the index will complete its seventh consecutive monthly advance today. Also, any further advance in the SPX today will mark another all-time high. Right now, I sense that we go higher, maybe to 3,750 by the end of the year; though that is a soft expectation, until the 2020 elections are final.
While I have some hedges on, my stock picking continues to pay off, which our performance will confirm. As I have outlined in prior editions of My Gut Feeling, I took the necessary portfolio adjustments to reflect new economic and societal realities. If I see some opportunities, I might lighten up those hedges. Otherwise, I will just accept the cost of hedges as it is a small price to pay, should a correction soon follow.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL, AMZN, PFE, TSLA, SPY, SPXL, SSO, SDOW, and DIA / DM (for some legacy accounts) – although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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