Will GOOG Stock Split in 2017?
If you arrived at this page by searching “Google stock split date 2017,” you’re probably a retail investor. But more importantly, you’re probably upset at Alphabet Inc (NASDAQ:GOOG). How can you be expected to dish out $920.00 for one share of Google stock? It’s absurd.
You want to own GOOG stock, of course, but only if there is a GOOG stock split in 2017. At least then it will be affordable.
The good news is that Google has split its stock before. Better still, other tech giants—I’m looking at you, Apple Inc. (NASDAQ:AAPL)—have also split their stocks in recent years. So it would be well within the norm for Google stock to be sliced and diced in the coming months.
There’s just one problem: We don’t know when Google will execute the split. It could be tomorrow or ten weeks from now. Which puts us in an awkward scenario.
Invest too early and a lot of capital is tied up in GOOG stock. Invest too late and miss out on the potential bump in Google’s share price. It feels like a Catch-22.
But there is a way out of this logic trap. Let me explain…
The answer is “Dollar-Cost Averaging,” otherwise known as “DCA.”
Dollar-Cost Averaging is an old investing trick, whereby investors space out their purchases to make sure they aren’t overpaying for a stock.
Put another way, they don’t buy shares all at once—they buy in small chunks to eliminate the daily randomness of market movements. Savvy investors have been using this trick for decades.
I personally think it can help investors take advantage of stock splits, but you won’t hear financial “experts” talking about this on TV…
Why? Because you are not their target audience. Wall Street is their target audience. And when it comes to the price of a stock, Wall Street doesn’t know or care about the difference between $9.00 and $900.00. They’re investing millions of dollars, so the sticker price doesn’t matter.
The same cannot be said for retail investors.
Many retail investors start off with tiny portfolios. They may want to anchor those portfolios with a technology giant like Alphabet, but GOOG stock is out of reach at $920.00 a pop.
That’s a real shame, especially because Google is still capable of massive growth. Don’t be fooled by its enormous size. There’s still plenty of gas in the tank.
Chart courtesy of StockCharts.com
How Dollar-Cost Averaging Works
Like I said before, DCA is a trick used by some of the greatest investors of all time.
All you have to do is resist the urge to buy all your shares in a lump sum.
The idea is to be patient. Load up on a few shares, then wait. Add a few more (or a lot more if the price drops) later on. Repeat this process until your investment thesis is dead.
If none of that made sense to you, consider this example:
While doing some research online, you come across an interesting company that makes microchips. You ask one of your tech-savvy friends about the technology, and they give you a positive impression. After more research, you start to believe this stock could surge.
There’s just one problem: the stock has a lot of volatility. You don’t want to risk buying it at the apex. What if it drops sharply the next day? What if it triggers your stop-loss limit and forces you to sell in the red?
(Assuming you’re a reasonable person that trades with a stop-loss limit.)
Worried about this possibility, you turn to another friend who became a millionaire through investing. Your friend advises you to buy a few shares at a time.
It turns out that was good advice, because the shares plunged within a week. But instead of panicking, you simply add more shares at the lower price.
Your earlier losses are smoothed out by picking up new shares at a bargain. And when the stock gyrates up, you realize there’s a reason why your friend became a millionaire trading stocks.
DCA works. I don’t know how else to say it. This little trick is pure magic at reducing the randomness of the stock market.
Google Stock Split History
There’s another reason to believe we’ll see a GOOG stock split in 2017: Namely, that it’s already happened once before.
|Google Stock Split History|
|March 27, 2014||2-for-1|
Here’s how it went down:
On March 27, 2014, the number of outstanding shares of GOOG stock doubled. If you owned 10 shares before the split, you owned 20 afterwards. But there was no change in your net position, because the price was cut in half as well. That’s how splits work.
It’s important that investors understand this. Stock splits don’t increase your returns in any way—they just alter the price you see on your trading platform.
For instance, I may be willing to pay $12.00 for a pack of cigarettes (I don’t smoke so I have no idea what cigarettes actually cost. Let’s also say there are a dozen cigarettes in each pack.) How am I supposed to react if the shopkeeper refuses to sell me one pack for $12.00? What if he will only sell me 12 cigarettes at $1.00 each?
Am I getting a deal? Am I getting conned? NO!
I’m still spending the same amount of money for the same amount of goods.
It doesn’t matter whether I spend $12.00 for a twelve-pack of cigarettes or $1.00 for twelve cigarettes. They are literally the same thing! Stock splits are much the same. The number of shares goes up, but the price of the share comes down.
Why Google Will Split Its Stock
Now you may be thinking:
“This is a dumb metaphor, Gaurav. No one in their right mind sells individual cigarettes. And even if they did, no one buys individual cigarettes.”
You’re right, of course.
Convenience stores don’t sell individual cigarettes…in America. They do in India. They do in Ethiopia. They do in lots of places where people aren’t as rich as they are in the United States.
The horrible truth is that not everyone can afford to buy a full pack of cigarettes.
Think about that for a minute, because the same concept applies to stock splits.
Someone making $3.5 million a year on Wall Street does not care whether Google stock tops $1,000. But you know who might be put off by it? The guy making $35,000 a year working on Main Street. That guy may feel like Google stock is too expensive.
So I want to push back on the idea that stock splits are completely worthless.
I mean, yes, stock splits don’t change a company’s intrinsic value. They don’t alter a firm’s tax bill, its bottom line, or its competitive advantage over rival firms. I know all that.
But if a split can widen the aperture of a stock, allowing more investors to have a shot at owning it, well, then I’m on board.
I think the management at Alphabet understands this basic concept. They are far smarter than I am, after all, so it must have occurred to them. It also helps that Apple underwent a 7-for-1 stock split not too long ago.
Imitation is the only thing more common than innovation in Silicon Valley.
How Will Stock Split Affect GOOG Stock Price?
While it’s true that stock splits don’t immediately move stock prices, I think they can over the medium term. Investors are drawn to them like bees to honey.
It all starts with the bump in trading volume.
As I demonstrated above, stock splits can draw in a whole new class of investors. In turn, this added volume can open the stock’s upside, thus leading to gains that would otherwise never have been achieved.
That said, the sticker price could look very different depending on the ratio of the split. Here’s a quick breakdown I threw together.
Although a 7-for-1 GOOG stock split seems unlikely, it could be necessary. You see, Google’s co-founders, Larry Page and Sergey Brin, signed the Giving Pledge.
The Giving Pledge is a commitment for billionaires to give away most of their wealth to great philanthropic efforts. In a practical sense, it means that Brin and Page have to keep selling off their Google stock so they can give it away. But they don’t want to give up control of Google.
Together Brin and Page control a majority of shareholder votes.
When their dominance was threatened in 2014, they executed the stock split. All the new shares were in a different class from the original ones. They were worth the same amount of money, but they had absolutely no say in the company’s affairs.
This allowed Brin and Page to keep their commitment to the The Giving Pledge while holding onto power in the firm they built. As time goes on, they may have to repeat that process.
If you’re wondering why a respectable publication like Profit Confidential is covering stock split stories, the answer is simple: We understand retail investors in a way our rivals do not.
They consider stock splits to be a useless move. We do not. We see the value in a stock split, even while understanding what it does NOT accomplish.
We know that splits don’t change a company’s intrinsic value, nor its balance sheet strength. We know there is no difference in how much tax the company owes, or how much competition it faces. Believe me, we know exactly what a stock split does not do.
But unlike the mainstream financial media, we try to understand what makes stock splits so appealing to so many people. We don’t simply turn up our noses at them.
What we’ve found is that stock splits lower prices to a comfortable level. Not just for Wall Street fatcats, but for Main Street as well.