Author Topic: Apple - sell now or wait for the stock split  (Read 9109 times)

ZiziPB

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Apple - sell now or wait for the stock split
« on: May 21, 2014, 06:20:22 PM »
I have about 125 shares of Apple stock in my IRA that I have held since 2000, worth about $75K or so.  I have decided to simplify my portfolio and move away from individual stocks (this is my last individual stock holding other than my employer stock which I am not selling for now due to capital gains on which I don't want to pay tax now). 

What are your thoughts on the stock split's effect on the price?  Would you sell now or wait until the split?

warfreak2

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Re: Apple - sell now or wait for the stock split
« Reply #1 on: May 21, 2014, 06:54:42 PM »
Why would there be an effect?

ZiziPB

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Re: Apple - sell now or wait for the stock split
« Reply #2 on: May 21, 2014, 06:57:55 PM »
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Why would there be an effect?

Totally irrational, but the lower stock price seems to be more attractive to certain investors...

warfreak2

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Re: Apple - sell now or wait for the stock split
« Reply #3 on: May 21, 2014, 07:23:06 PM »
If people will irrationally buy, then this would cause the price to go up, so you should sell after the split.

But if people will sell after the split because they predict irrational buyers, then the price will go down, so you should buy after the split.

Et cetera. This seems like a silly game to me - you have to guess how far down the rabbit hole everyone else will go, and go one further. Of course, you can play whatever games you like, but my call would be that the vast majority goes infinitely far down the hole and the price corrects itself too quickly to get any edge. Then again, I'm not the sort of person who would hold $75k in one stock...

KingCoin

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Re: Apple - sell now or wait for the stock split
« Reply #4 on: May 21, 2014, 07:46:14 PM »
If people will irrationally buy, then this would cause the price to go up, so you should sell after the split.

But if people will sell after the split because they predict irrational buyers, then the price will go down, so you should buy after the split.

Et cetera. This seems like a silly game to me - you have to guess how far down the rabbit hole everyone else will go, and go one further. Of course, you can play whatever games you like, but my call would be that the vast majority goes infinitely far down the hole and the price corrects itself too quickly to get any edge. Then again, I'm not the sort of person who would hold $75k in one stock...

Without referencing the literature, I can say confidently that if the effect was large, hedge funds would arb it out, making it pointless to try to game the split.

In any event, the volatility in stock price between now and the split will surely dwarf any split effect.

ZiziPB

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Re: Apple - sell now or wait for the stock split
« Reply #5 on: May 21, 2014, 08:00:36 PM »
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Then again, I'm not the sort of person who would hold $75k in one stock...

Me neither!  I am rather awestruck that I bought it for about $30 per share, so the $75K doesn't seem real ;-)

I was prepared to sell it at $300, then I got busy with other things and it went to $700, now it's been consistently around $600.  Just not sure when to pull the trigger.  Primarily because I didn't have a plan for the proceeds...

Quote
if the effect was large, hedge funds would arb it out, making it pointless to try to game the split.

I don't think the effect will be large but the sentiment seems to point to some positive effect.

JamesAt15

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Re: Apple - sell now or wait for the stock split
« Reply #6 on: May 21, 2014, 08:02:19 PM »
I went through similar thoughts when I sold my own, admittedly smaller, chunk of AAPL when consolidating to a much simpler investment portfolio. In the end, I decided that one of the reasons I was consolidating in the first place was to stop worrying about individual stock prices and movements and buy and sell dates. So I just sold it all off and moved on.

If you really think the "should I have sold? should I have waited?" question is going to gnaw at you, how about sell half now, half after the split and WWDC finish up? Then you'll be at least half right. ;)

I grant you that AAPL is kind of a funny position right now, with the split positioned right over WWDC, when they'll probably make some number of product announcements and/or unveilings. Your guess is as good as mine, but it seems to me that often AAPL drops immediately after WWDC and other Apple events as the standard wall street analysts are disappointed at whatever Apple announced and how it doesn't match up with what they wanted or were expecting. Then it takes a few days to digest whatever they announced and people start to decide that whatever it is will actually be pretty damn cool after all, and the stock rebounds...

But then again, I saw some articles suggesting to buy AAPL now before the split, so I have no frigging idea how that will affect my pet theory!

So if it were me, I'd just sell it now and check in again on June 10 or so and see what the heck happened. Then pretty much forget about it. ^^

RapmasterD

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Re: Apple - sell now or wait for the stock split
« Reply #7 on: May 21, 2014, 08:18:41 PM »
Dump the thing and  move on. I think this is a minor issue given your 14 year holding period. AAPL was what -- about $34 back in 2000? Kiss the ground, say thank you, and sell.

ZiziPB

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Re: Apple - sell now or wait for the stock split
« Reply #8 on: May 21, 2014, 08:27:02 PM »
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$34 back in 2000?

$30 and change ;-)  Kiss the ground is right!!! 

Love your take on it, especially the moving on bit.  I was very lucky with it but it was not my pick in the first place - the buy was on the recommendation of my ex and as we've been divorced for almost 2 years now, I think it's time to let go...

Indio

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Re: Apple - sell now or wait for the stock split
« Reply #9 on: May 21, 2014, 08:31:21 PM »
Ahh... the joys of market timing. Just read today that Google has become a more innovative company than Apple. But the pronosticators have been wrong about Apple many times.

ZiziPB

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Re: Apple - sell now or wait for the stock split
« Reply #10 on: May 21, 2014, 08:37:49 PM »
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Ahh... the joys of market timing.

Yeah, you're right.... Having said that, there are a bunch of active investors and frequent traders frequenting this space so I was hoping to hear from some of them.

ijingle

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Re: Apple - sell now or wait for the stock split
« Reply #11 on: May 21, 2014, 09:33:31 PM »
Sell, sell, sell!

hodedofome

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Re: Apple - sell now or wait for the stock split
« Reply #12 on: May 22, 2014, 07:44:10 AM »
There is no trader on the planet, without inside information and order flow information, that could predict what AAPL is going to do before and after the split with a high degree of accuracy (like 80%+). OK, perhaps there's some really good options guys out there like Joe Kunkle https://twitter.com/OptionsHawk that could analyze the options trades and have a fairly good idea of where the big guys (hedge funds, prop shops, pro traders, etc) are positioning themselves for the next several months. But I wanna say Joe's win rate is still only 60-70%.

I like the ideas of selling out now or at least selling 1/2 now and 1/2 later. You could also decide to ride the upward trend until it's broken. You would use an objective price only tool for this, like a moving average. Depending on your timeframe, you could hold on until the price closes below the 20 or the 50 day moving average and sell everything the next morning. This would allow you to stay in the trend as long as it's going up, and get out without any emotions.

Whatever you do, have a plan, stick to the plan and don't change the plan. Don't get greedy with vain imaginations of a $1,000 stock price (pre-split). At this point your reasons for being in the stock are long gone, so you just need an intelligent, emotionless place to get out (which could be today and nobody would fault you for it).
« Last Edit: May 22, 2014, 07:48:48 AM by hodedofome »

rubybeth

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Re: Apple - sell now or wait for the stock split
« Reply #13 on: May 22, 2014, 09:13:00 AM »
I won't tell you what to do, but I will say that I'm keeping my Apple stock and have no plans to sell, even after the split. Everything else goes into index funds. My stock was a gift, so it's not money I'm counting on, more like 'fun money.' I'm also not counting on it in order to FIRE.

SunshineGirl

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Re: Apple - sell now or wait for the stock split
« Reply #14 on: May 22, 2014, 10:08:58 AM »
If you know you want to sell, why not just set a limit order to sell if it declines by a certain amount, say 3%? That way, you can ride it up but limit your downside risk. No regret.

SunshineGirl

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Re: Apple - sell now or wait for the stock split
« Reply #15 on: May 22, 2014, 10:17:25 AM »
And, having said that...I'm all for simplifying one's portfolio, truly I am, but APPL is in quite a strong financial position and I believe the dividends are going to continue to rise, don't you?

Selling will bring you a tax bill of around $6500-7000, won't it? (longterm capital gains) You could choose NOT to sell, but take all dividends from this point forward and put those toward an index fund or other stocks.

For simplicity's sake, let's say your taxes will be $7K on the sale. $7K earning 6% annually over 20 years = $148,000.

Oops, I just went back and read that this stock is held in your IRA. Disregard this post!

ZiziPB

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Re: Apple - sell now or wait for the stock split
« Reply #16 on: May 22, 2014, 10:36:50 AM »
@SunshineGirl, I agree about your view on APPL.  I like the company and would hold on to the stock long term but for the portfolio consideration.

I am considering rolling my IRAs into my 401k and doing backdoor Roth for 5 years, and if it wasn't for that I would hold the stock long term.  See my post here: http://forum.mrmoneymustache.com/investor-alley/rollover-iras-into-401k-in-order-to-do-backdoor-roth/

dragoncar

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Re: Apple - sell now or wait for the stock split
« Reply #17 on: May 22, 2014, 10:38:31 AM »
If people will irrationally buy, then this would cause the price to go up, so you should sell after the split.

But if people will sell after the split because they predict irrational buyers, then the price will go down, so you should buy after the split.

Et cetera. This seems like a silly game to me - you have to guess how far down the rabbit hole everyone else will go, and go one further. Of course, you can play whatever games you like, but my call would be that the vast majority goes infinitely far down the hole and the price corrects itself too quickly to get any edge. Then again, I'm not the sort of person who would hold $75k in one stock...

Without referencing the literature, I can say confidently that if the effect was large, hedge funds would arb it out, making it pointless to try to game the split.

In any event, the volatility in stock price between now and the split will surely dwarf any split effect.

you'd think that, but you might be wrong:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1266008400000&chddm=11455&chls=IntervalBasedLine&q=NYSE:BRK.B&ntsp=0&ei=xyd-U4i1JePy6AHL94GQDg

edit:

maybe more clearly seen here:

http://finance.yahoo.com/q/bc?s=BRK-B&t=5y&l=on&z=l&q=l&c=

Anyways, that's a big split which significantly changed the number of people who were able to buy a single share.
« Last Edit: May 22, 2014, 10:40:49 AM by dragoncar »

ZiziPB

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Re: Apple - sell now or wait for the stock split
« Reply #18 on: May 23, 2014, 10:28:58 AM »
Thanks all for the input.  I am still weighing my options.  For now, I have stopped the automatic dividend reinvestment so that this holding doesn't grow any larger.

KingCoin

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Re: Apple - sell now or wait for the stock split
« Reply #19 on: May 23, 2014, 04:30:18 PM »
If people will irrationally buy, then this would cause the price to go up, so you should sell after the split.

But if people will sell after the split because they predict irrational buyers, then the price will go down, so you should buy after the split.

Et cetera. This seems like a silly game to me - you have to guess how far down the rabbit hole everyone else will go, and go one further. Of course, you can play whatever games you like, but my call would be that the vast majority goes infinitely far down the hole and the price corrects itself too quickly to get any edge. Then again, I'm not the sort of person who would hold $75k in one stock...

Without referencing the literature, I can say confidently that if the effect was large, hedge funds would arb it out, making it pointless to try to game the split.

In any event, the volatility in stock price between now and the split will surely dwarf any split effect.

you'd think that, but you might be wrong:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1266008400000&chddm=11455&chls=IntervalBasedLine&q=NYSE:BRK.B&ntsp=0&ei=xyd-U4i1JePy6AHL94GQDg

edit:

maybe more clearly seen here:

http://finance.yahoo.com/q/bc?s=BRK-B&t=5y&l=on&z=l&q=l&c=

Anyways, that's a big split which significantly changed the number of people who were able to buy a single share.

This is  only one (extreme) case. The question is whether the pattern holds more generally (and enough so to justify the volatility in the meantime). It's my contention that it does not since it would be so easy to arbitrage, but I'll leave it to others to comb the literature.

MissPeach

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Re: Apple - sell now or wait for the stock split
« Reply #20 on: May 24, 2014, 10:57:23 AM »
I'm holding onto mine. They have lots of cash, no debt, and strong sales/market share. I believe so me of the new products will go out around the holidays so I think it will still go up some more.

KingCoin

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Re: Apple - sell now or wait for the stock split
« Reply #21 on: May 24, 2014, 11:30:11 AM »
I'm holding onto mine. They have lots of cash, no debt, and strong sales/market share. I believe so me of the new products will go out around the holidays so I think it will still go up some more.

This is sort or irrelevant to the topic at hand (whether a stock split will affect market cap), but I'll be contrary and make the following comments:

1) Is a huge cash stockpile a good thing? This often means that a company is struggling to find ways to invest it's capital and that growth prospects might be slim.
2) No debt? Apple has issued $29 billion bonds in the last year, and while net leverage is still basically 0, this could just be the beginning if shareholder activists get their way. In fact, as a stock holder, you might be better off if AAPL starts to level dramatically, especially when they're borrowing at close to the same level as the US Treasury.
3) Apple will come out with new products, but if recent past is prologue, they're not going to be very interesting. At what point do people tire of paying an enormous premium for Apple products when they can get something nearly as good for 1/3 of the price?
4) None of these observations are value predictive. They'd all be true whether AAPL stock was at $60, $600, or $6,000. Why do you think $600 is the wrong price and $800 (or whatever) is the right price?

I don't mean to pick on MissPeach specifically, but it's common for retail investors to parrot some facts about a company's balance sheet, do some hand waving about future business prospects, and then make a busy/sell/hold recommendation. Do they think that literally every other market participant doesn't have the same basic information?

N.B. I generally think owning individual stocks is harmless provided it's done in the context of a disciplined and diversified portfolio and have no view on AAPL specifically.

rmendpara

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Re: Apple - sell now or wait for the stock split
« Reply #22 on: May 24, 2014, 01:13:51 PM »
Zizi:

Congratulations on the big win, but it's not likely to repeat. After all, you bought around a time when Apple was doing nothing to spectacular, and held on.

At this point, simple math takes over. AAPL market cap a decade ago at $10B grew to $500B today, but do you see the same growth rate happening for the next decade? Even 3 decades combined? Highly doubtful that AAPL will be worth $25 trillion.

You're not me, but I would take some gains, and probably keep some holdings if you believe in the company. Maybe sell 80% of your position and hold the remainder? It seems like they will have no choice but to increase dividends/buybacks over the next decade... likely a good store of value, but probably not much more than that.

Full disclosure, I bought into AAPL last yr around $440, and am considering a sale if it reaches $625. At least cut my position in half, maybe all of it if I have any other investment ideas.

kyleaaa

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Re: Apple - sell now or wait for the stock split
« Reply #23 on: May 24, 2014, 06:38:15 PM »
The stock split boost has been measured between a 4-5% increase in returns in the year following a split. The stock split effect IS real, it IS measurable, and it is NOT arbitrated away by hedge funds, or at least it hasn't been in the past. Whether or not it will in the future is anyone's guess.

That said, this information doesn't help you at all because the performance boost is relative to other individual stocks of similar size and beta i.e. you still bare plenty of diversifiable single company risk for which you aren't rewarded. Best to just sell now and invest in an index.
« Last Edit: May 25, 2014, 07:34:12 AM by kyleaaa »

KingCoin

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Re: Apple - sell now or wait for the stock split
« Reply #24 on: May 26, 2014, 08:40:30 PM »
The stock split boost has been measured between a 4-5% increase in returns in the year following a split. The stock split effect IS real, it IS measurable, and it is NOT arbitrated away by hedge funds, or at least it hasn't been in the past. Whether or not it will in the future is anyone's guess.

Citation please?

marty998

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Re: Apple - sell now or wait for the stock split
« Reply #25 on: May 27, 2014, 05:23:36 AM »
The market, on average, goes up by more than 4-5% each year?

ZiziPB

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Re: Apple - sell now or wait for the stock split
« Reply #26 on: August 15, 2014, 08:31:46 AM »
Update:  I collected the most recent dividend and sold the stock today.  A bit sad...  The good news is I still own lots of it - through my various index funds :-)