Stocks, Splits and IPOs
Updated: Mar 16, 2022
An Initial Public Offering (IPO) means that a company has decided to raise money (or capitalize itself) by selling ownership in the company. Y’all might have seen this one in the news. They issue stock shares, which represents ownership in the company and folks get super excited. An IPO IS a big deal, kinda. It means that a company has plans to grow and expand, and, if things go well, people that own stock can benefit from the growth. Let’s put a pin in that…
You might have also heard that Amazon and Google are issuing stock splits. Let’s take a stock that is currently selling for $100 per share. If a stock split issues a 2 for 1 split, then someone who owns one share worth $100 each would suddenly own two shares worth $50 each. The actual value of the stock doesn’t change, there are just more shares to spread around. This makes the shares more affordable and easier for “small” investors to purchase.
Now - I’m sharing these “stock” stories so that you’ll know they don’t mean anything. While IPOs and stock splits may sound like you should do something, you should not. Here’s the thing…Fenty may be a wonderful product - but that doesn’t make it a great investment. There is nothing about issuing stock that says that the business is well run, or that it will grow or that the stock will be worth something in 5 years. If you choose to invest in Fenty, do it because you’ve researched the company, the growth plans, the business plan and you’re comfortable that it’s a good investment. If you like the makeup, wear the makeup, but don’t make investment decisions based on it. That’s kinda what the market is hoping you’ll do - hear about an IPO of a product that you love and rush out to buy it. Which may inflate the price of shares in the short term, then they may drop - or keep going up. The point is - an IPO is an exciting time, for both customers and investors and if you want to get into it, and buy shares - you should. But you should make sure that that purchase fits into your overall investment plan - don’t buy it for the buzz.
Similarly - a stock split doesn’t mean much if you’ve been investing consistently over time. Stock splits are kind of a blip that benefits the company - if you’re already invested in that company, it doesn’t affect you. If you aren’t already invested in that company, a stock split doesn’t mean you should jump right in. Just like the analysis of an IPO - a stock split doesn’t mean that the investment is right for you. If you read the papers, they would have you thinking that stock splits are big deals and something you should pay attention to…and maybe you should. But remember that investing (as compared to trading), is a long game. Jumping into the next IPO and stock split may sound like a good idea, but they are short term plays. Do your research and make your investments based on your investment goals. Don’t get distracted by the shiny new things in the market…
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