Money Rehab with Nicole Lapin - How You're Affected When a Stock Splits— and Should You Buy Chipotle Stock?

Episode Date: May 13, 2024

Right now, Nvidia— the current stock market darling— is trading at over 900 bucks a share, and the CEO has been warming towards the possibility of a stock split. Nicole decodes what a stock split is, how it affects investors, and what Chipotle's potential big split would mean for the company. To hear which companies give investors sweet perks, click here: https://link.chtbl.com/emngIqvE

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your

reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Right now, Nvidia, the current stock market darling, is trading at over $900 a share.

And now the CEO has been warming toward the possibility of a stock split. I know there's a lot of jargon on Wall Street, and I won't tell you anything you don't need to know, but I have to say, if you're an investor who's looking for opportunities in the market, you should know what a stock split is. So today I'm going to decode this money move and unpack what happens when a company decides to split its stock, what it means if you're holding those shares, and what opportunities you can jump on if you hear a stock is about to split. Okay, so I know we're all sick of pizza metaphors, but there's a reason it works, right? So please lean in with me for a sec. Imagine you're having a romantic date and you order in pizza, the best kind of date there is, and you cut your pizza into

four big slices because you love a mega slice and who am I to judge? You and your boo decide that you're probably going to each fill up on just one slice, which will leave you half a pizza untouched. So you decide to call up some friends, and four friends who want pizza show up on your doorstep. Amazing! The more the merrier. But you only have two pieces left. So you cut all of the pieces in half, which means the half of the pizza that you weren't going to eat just went from two pieces to four pieces. And because you decided to cut all of the pieces in half, you even cut the big slice that you already have on your plate. But even after you cut your slice in half, you keep both pieces because you make the rules. So each of your friends get a slice and you get to keep your piece, which is now two slices.

Everyone gets pizza. The slices are just a little smaller so more people can share in the yum. That is essentially a stock split. The company decides to split each share of its stock into two or more pieces. So the total number of shares increases. But if you own some of the shares before the split, the total value of your stake stays the same. You just have more shares, just like the pizza example, right? We cut the slices in half, so there are overall more slices of pizza, but the pizza didn't get bigger, right? You still kept the same amount of pizza on your plate. You just cut it in half, but it's still going to fill you up the same way it would have before you sliced it. The pizza metaphor that we all love to love when applied to the investing world could be called

a two for one stock split, where each share is split into two. If you owned 100 shares in a company after the split, you'd own 200 shares in a two for one split. But companies can split shares into however many pieces they want. For example, one of the most famous stock splits happened with Apple in 2014 when the company executed a seven for one split, which drastically lowered the price of its shares from $656 to $93, making the stock more accessible to a wider pool of investors. And then Apple did another split in 2020, this time a four for one split, again, aiming to make share ownership more feasible for more investors. Another buzzy split was executed by Tesla in August of 2020 when Musk's company announced a five for one stock split. But the

biggest split in my recent memory is Chipotle's intention to split their stock 50 for one. Yeah, newsflash, you might think Chipotle stock would trade around the same price as the products, like maybe, I don't know, 20 bucks a share. But no, one share of Chipotle is actually over 3,200 bucks. So a 50 for one stock split would make one share of Chipotle worth 64 bucks. Still a lot of burritos, but not as many. So if you're a Chipotle investor and you own one share of stock after a 50 for one split, you would have 50 shares at $64 a pop. Your total investment is still 3,200200, but now you just have more shares at that lower price per share. Let's take a step back for a second. Why the heck would companies want to do this? It seems like a whole lot of trouble for no real change for investors.

First of all, I will say not every company does stock splits. Warren Buffett, for example, famously has never split Berkshire Hathaway's Class A stock, and that stock is now trading at over $600,000 for just one share. But for companies that have split their stock, the historical rationale has been that if a stock price gets too high, it will start to feel inaccessible for investors who are looking to invest small amounts. This used to be a bigger consideration in the days before fractional investing. It used to be the case that investors could only buy whole shares at a time. So if you wanted to invest in Chipotle, you could only invest $3,200 at a time. And if you had less, then you were out of luck. Fractional investing has allowed investors to buy, yes, fractions of shares.

So you can buy less than a share. You could buy three and a half shares if you want. You could buy any odd amount you could think of. This allows you to invest $100 or even $5 in half shares if you want you could buy any odd amount you could think of this allows you to invest a hundred bucks or even five bucks in chipotle if you want to you don't need to think about how many shares you want to buy you just need to think about how much you want to invest but even though fractional shares have softened the impact of stock splitting stock splits do still present opportunities for investors it's just a little different now a stock split can often lead to increased buying interest, which often drives up the price of the stock, and splits are generally

perceived as signs of corporate optimism, a belief by company execs that the share price will continue to rise. Plus, there are certain perks that investors get by owning a certain number of shares. I talked about this at length in another episode that I linked in the episode description, but for example, Royal Caribbean Group offers $1,000 credit to anyone who books a world cruise and owns at least 100 shares of their stock. So if you have 50 shares of Royal Caribbean stock and it splits, boom, all of a sudden you own enough shares to start reaping those perks. But let's get back to NVIDIA for a sec. Some experts are expecting the stock to split and for it to either be four for one or a five for one split. This wouldn are expecting the stock to split and for it to either be four for

one or a five for one split. This wouldn't be the first time Nvidia split. Nvidia did a four for one split in 2021 when one share was about 600 bucks. As you watch for these headlines, remember that stock splitting can bring volatility because there's a spotlight now on the company splitting stock. So there might be more analysis into whether or not the company is overvalued, which could hurt the stock. And this brings me to today's tip you can take straight to the bank. If you own a stock that splits, even though it sounds like getting more shares might translate into more money for you as an investor, a stock split itself doesn't add any value to your portfolio. The fundamentals of a company don't change because of a split. And if a stock is overvalued before a split, it will remain overvalued after the split. So don't

buy into the hype. Watch for the signs that the company's performance justifies the split-induced enthusiasm and act accordingly. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up

to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bank Corp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject

to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. co-hosts with Airbnb experience that can take

care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin.

Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.