Stock Splits and Reverse Splits — The Apple and Tesla Cases
The news that Apple split its stock 4:1—does that mean my Apple shares quadrupled and I got rich? Sadly, no. Let's find out the true meaning of a stock split.
Stock Split: Cutting the Pizza into Smaller Slices
A stock split divides one share into multiple shares. In a 4:1 split, 1 share becomes 4 shares, and in exchange the price is adjusted to roughly one-quarter. About $59 for 1 share becomes about $15 each for 4 shares.
Here's the key: the number of shares increases, but the price drops by the same amount, so the total value of the assets you hold does not change. The company's market capitalization (total value) is also unchanged. It's exactly like cutting a pizza from 4 slices into 8—the amount of pizza is the same.
So why do it? When a share price gets too high, small investors find it burdensome to buy even 1 share. Lowering the price per share via a split makes it easier for more people to access. Raising psychological accessibility is the main reason.
A split itself does not change corporate value. There's no guarantee that 'it split, so it will rise.' That said, accessibility improves, so an effect of increased trading sometimes appears.
Real Cases: Apple and Tesla
The most famous case is Apple. Apple has split its stock several times in its history, with a 7:1 split in June 2014 and a 4:1 split on August 31, 2020 being representative. In the 2020 split, 1 share became 4 shares and the price was adjusted to about one-quarter.
On the same day, August 31, 2020, Tesla also carried out a 5:1 split. It became a talking point that two mega-cap companies split on the same day. Tesla later did a 3:1 split in August 2022 as well.
A reverse split is the exact opposite. It combines multiple shares into one, reducing the number of shares and raising the price. It's used when a stock whose price has fallen too low wants to meet listing-maintenance requirements or shed a low-priced-stock image. A reverse split, too, does not change the total value.
Apple's 2014.6.9 (7:1) and 2020.8.31 (4:1), and Tesla's 2020.8.31 (5:1) and 2022.8 (3:1) are facts confirmed by each company's disclosures and numerous sources. It's also a fact that the two splits fell on the same day (2020-08-31).
よくある質問
Q. A stock split increases the number of shares, so isn't it a gain?
No. As the number of shares increases, the price drops by the same amount, so the total value stays the same. 'Becoming 4 shares' doesn't quadruple your assets; you just hold the same assets sliced more finely. A split itself does not create wealth.
Q. Why bother splitting at all?
When a share price is too high, small investors find it burdensome to buy even 1 share. Lowering the per-share price via a split makes it easier for more people to participate and can make trading more active. The main reason is the psychological and accessibility aspect, which is separate from the company's performance improving.
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