Last week, one of my favorite stocks NVIDIA announced quarterly earnings that sent the stock surging beyond the $1k threshold. I certainly wouldn’t recommend buying a stock that costs $1,000 but luckily, they also announced a 10-1 stock split. This is good news for small retail investors like me and you. I’ll explain.
10-1 stock split
So, here’s what a stock split essentially does. Let’s say company B is currently trading at $100 per share and they announce a 10-1 split. This means if you’re holding 1 share of company B, you will now have 10 shares, worth $10 each. Think of a pizza pie and cutting it up into 8 slices…and then cutting it up again to make 16 slices. There is no fundamental difference, same pizza, just smaller pieces to feed everyone.
Companies usually execute stock splits to make their price more attractive and accessible to more investors. While there’s no difference financially, the psychology of a stock price being $100 instead of $1,000 is just more appealing for people wanting to buy in.
So, when should you buy…before or after a split? I’ve experienced both scenarios and there isn’t much difference. What I will say is when a split is announced, the stock tends to run up before the split date. So technically, buying before may get you some positive gains before the split occurs. But in the long run, buying before or after won’t matter much. The key is that you’re buying a quality company that will be here for generations and provide good returns. For me, NVIDIA has been gold and I’ll be buying some more after it splits.
Disclaimer: I am not a financial advisor and thoughts here are my own.