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The Tesla 5 to 1 Split, What will Happen Next

Did you hear? Tesla is doing a five to one split

We’ve been getting a lot of questions regarding Tesla doing a five to one split. What is it? Everyone is talking about Tesla being right around $300 at the end of this month, September area. So does that mean everyone’s about to lose $1,300? The answer is no. In my opinion, this is a very, very good thing, especially if you’re a long-term investor and here’s the reason why. Really pay attention.

In January 2020, Tesla was trading right around $400 a share. Right now it’s at $1,608. So went from $400, $800 $1200, $1600 US dollars, okay? So if you had a $10,000 investment, your $10,000 investment is now valued at $40,000 giving you a $30,000 profit. The challenge is Tesla is very expensive right now, and there’s a lot of people that want to invest in Tesla, but they just can’t afford $1,600 a share. So what companies will do is companies will do what’s called a split. In this scenario, they’re going to do a five to one split, and they’re going to add more shares that are tradable and to bring the value down. But the value of your position is not going to go down here.

What is a five to one split?

So imagine that you have a hundred dollar bill. So here is $100. And now you’re being told, we’re going to take your hundred dollars away from you, and we’re going to give you in return one, two, three, four, five, $20 bills. So now instead of you walking around with a hundred dollar bill, you’re now going to have five $20 bills. Five $20 bills is equal to $100. It’s the same amount of money, just different quantity.

So if they do a five to one split, Tesla is at 1,600 bucks. When they do this, let’s just say it’s at this same price, it’s going to drop all the way down to just over $300. Now you may say, “Yeah, but if I have a position right now, and there’s $1,600, won’t I lose $1300 bucks?” The answer is no, because you’re going to be given more shares to equal your previous position. So the price will be divided by five because five times the share is going to be introduced into the marketplace. Just like how you exchange a $100 bill to five $20 bills.

Now, what does that mean for investors?

Long-term investors, this is a really good thing, especially if Tesla continues to go up. Now, what do I mean by that? Well, think about this. Let’s say in January you invested $10,000 hypothetically, and the share was $40. I mean sorry, $400. Now Tesla is at $1,600. So your $10,000 position is now $40,000 position. $30,000 of profit, $10,000 initial investment. They do this five to one split. The value goes just right around 300 bucks, a little bit, over $300. Your position is still $40,000 because you now have five times the shares that you used to have.

What about new investors?

Well, now it’s very tangible for new investors to get involved because it’s only like 300 bucks. What if Tesla doubles again by the end of this year? It’s very possible. It’s very plausible, especially with the route that they’re going, and it goes back to $600. Well, you’re $40,000 position was just doubled again and then now, it is an $80,000 position, which basically means Tesla if that happens, Tesla gave you the ability to realistically seven times your money in the same calendar year. That $10,000 position is now valued at $80,000 if that were to happen, which is a $70,000 profit, which is completely mind blowing, but this is exactly what longterm investors look for.

Nothing to worry about

So when Tesla makes the announcement, which they already have, but when they do the five to one split and value goes down, it’s not a crash. Nothing to worry about. It’s really a good thing in my opinion, it’s very healthy too and it shows long-term investments. That is also a really good thing for those of you that buy and hold because you can really compound and reinvest really get your position in a good spot to multiply your returns.

Hey, this Josh Martinez TradersAgency.com.
Hope you have a wonderful day.

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