It feels like every few days the stock market presents us with a news story that leaves us scratching our heads. When you zoom out and look at it from a long-term perspective, the market is a rational being, but when you look at the day-to-day swings and roundabouts it’s anything but. One such story that stuck out to me as particularly irrational — and that’s saying something considering how the market has behaved in the past six months — is the run-up in the stock price of both Apple (NASDAQ: AAPL) and Tesla (NASDAQ: AAPL) after they announced their respective stock splits.
Now, I’m sure you’ve heard this statement ten times over but for the sake of this article, I’ll repeat myself and every other financial commentator from here to Mars one more time: STOCK SPLITS ADD NO INTRINSIC VALUE TO A COMPANY. And yet, after Apple announced it was splitting its stock the company increased in value by about 20% in the space of just three weeks, peaking at the end of August. That’s almost $400 billion. Not to be left out, Tesla announced its own stock split the very next day. That led to a ridiculous 80% jump in the value of the company in the same time frame.
Apple & Tesla are now feeling bearish
September has been a bit of a reality check for the market with a lot of the mania surrounding tech stocks subsiding. This has led to a number of pullbacks in the sector, with Apple and Tesla the biggest names to come back down to reality. In doing so, they have fallen into a bear market. Now a bear market may sound quite foreboding, but all it really means is that these stocks have fallen 20% or more from their peaks. And when the two stocks in question have seen such a fast, and in a lot of people’s eyes unwarranted, rise, the fact that such a pullback occurred will be par for the course. Considering Apple is still up 44% for the year, while Tesla is up 350% means there isn’t much to worry about for any long-term investors.
Apple and Tesla aren’t the only companies to find themselves in a bear market. Big names like Lululemon and Docusign, which have led the way in what has been an historic market-rally have also dropped more than 20% from their highs. The truth is that the tech rally we’ve just witnessed is not going to be sustainable in the long-run, and the pull back we’re seeing now is perfectly normal. By looking at the market through a long-term lens, investors can save themselves a lot of short-term panic.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Financial Analyst at MyWallSt
Michael's first and favorite stock is Square, which he sees becoming a massive player in the payments industry and a leader in the war on cash.