Tesla Stock Splits, Small Businesses, Hyperinflation, and Elections: Cut Through The Noise

Welcome to our first episode of Cut Through the Noise, where Anthony Saffer and Alex Okugawa tackle the hottest topics in financial markets, financial planning, and life, including:

• Should I buy TSLA and AAPL due to stock splits?
• What should small business owners do to stay afloat?
• Are we headed towards hyperinflation?
• Should I invest more defensively until after the election?

Authors: Anthony Saffer CFP®, CKA® and Alex Okugawa CFP®, CKA®, CEPA®

Full Transcript:

Should I buy TSLA and AAPL due to stock splits? [00:20-02:27]

Alex: Hi there, and Welcome to our segment “Cut Through the Noise” So today we are going to answer common questions that we have been hearing throughout the month along with what’s going on around the world. As always. If you have a question that you’d like us to answer drop a comment below or you can send us an email at admin@onedegreeadvisors.com.

So Anthony, let’s get right into it. I know a common question. We’ve been hearing throughout the month is should I buy Tesla or maybe and or apple due to the stock splits?

 

Anthony: Yeah. So last week they split, they got an Immediate jump in their stock price it seemed very speculative in nature. I think it’s important to understand and I like the analogy to help explain what a stock split is. It’s kind of like taking $100 bill and exchanging it for four five 20s. And so there’s no real value creation by a stock split in itself yet. It does tend to generate some interest.

 

Alex:  Well, of course the big thing that people the big buzz people talk about it is by creating stock splits it thereby decreases the individual price of a single stock of either apple and Tesla therefore it makes it more readily accessible to the masses. Right? So it’s cheaper more people getting can get into it therefore it will drive up demand, therefore it will drive up prices.

I mean who knows if that’s actually a legitimate cause and again, I think one of the things that we should be paying attention to and looking forward in the future is fractional shares is becoming a bigger thing and really what that is the ability to buy a partial share of an ETF or a stock.

Like I can buy .25 shares of Apple if that continues to happen and we move toward the future of fractional shares is just a way of life and you know, it’s no different than anything else. Maybe this whole phenomenon goes away and maybe we see that you know, it really just is artificial it’s short term and it’s really no more than glorified gambling in the short term right? Because I’m just betting based upon a stock split that prices are going to go up right?

 

Anthony: and we should point out that after that initial bump the shares did drop and so I mean you really see it as and that’s not I’m not saying it’s always the case, but you really sort of the speculative nature of it. Where there was so much Buzz around it was like “Hey, I’m going to buy it because I think you’re going to buy it” and therefore I’m going to profit from it.

 

Alex: There’s always someone on the end of the trade, when you’re buying someone else is selling its not just this artificial imaginary thing, right?

 

What should small business owners do to stay afloat? [02:28-04:17]

Anthony: All right, let’s go to question number two. What should small business owners do to stay afloat through this pandemic and the pending shutdowns?

 

Alex:  Yeah, it’s a really good question. I think a lot of business owners are doing the right things, you know, they’re reaching out there using their network and their resources and they’re trying to apply for PPP and EIDL loans. I’d say the one thing I have been noticing though with several business owners and

I’ll just give you an example this is a very recent case. Not actually a client of ours. She was referred to me by someone through my church small business. That was kind of struggling. And I you know just kind of pointed her to the direction of the SBA resources that are available, you know talk with a representative. Tell them about your unique situation and they can help walk you through, you know, the different avenues that you might explore

Sure enough they were able to get funding through the EIDL that they previously thought they weren’t able to. Again this isn’t no this isn’t a big pat on the back to myself. But the point I’m trying to make is biggest thing business owners can do right now staying afloat as just being flexible, being adaptive and reaching out to their Network, you know trying to see what options are available. Even if it does seem kind of far-fetched really reaching out.

 

Anthony: Yeah. I mean, you’re the Small business expert but are you really sensing like that frustration in business owners mainly because of the changing guidance?

 

Alex: Absolutely, things are going back and forth. What seems like on a weekly if not monthly basis so I can certainly feel for them. Again the biggest thing is just being flexible. I love seeing business and business owners getting creative whether that be doing things outdoors, you know finding unique ways to do delivery change up their product or service offering that’s been a huge win for businesses that are able to stay flexible and willing to change.

Are we headed towards hyperinflation? [04:23-06:12]

Alex: All right. So another big question, of course, this is a, you know, kind of a difficult question to answer but it’s are we headed towards hyperinflation?

 

Anthony:  Yeah hyperinflation is an extreme scenario. I think by its definition it’s something like, you know, 50% loss of value every month.

 

Alex: So we’re not talking about, you now, a percentage or two per year. I mean, this is something quite dramatic.

 

Anthony: Right, right and it’s kind of one of those things where anybody that’s ever said, you know, yes, we’re headed for hyperinflation has always been wrong at least in the history of this country. So it’s not saying it couldn’t happen but it’s a very extreme scenario that’s never happened here in our country.

Percy Hamilton had a great thread on Twitter where she answered this question basically and you know, her summary was that it basically wouldn’t happen because of the reserve currency of the United States. So 60% of all foreign currency reserves are held in the United States dollar and basically Commodities are run through the US dollar.

So there’s so much that’s intertwined with it and given it is a very complex topic. It’s extremely difficult situation for that to happen.

 

Alex:  So in summary, I mean it’s not out of the question but the likelihood of it happening to any country.Let alone the US it kind of like keeps decreasing the chances of it happening.

 

Anthony: Yeah, and probably the better responses and say okay if we’re worried about inflation.What do we do about it, you know and things like diversification of assets like, you know, having real estate even stocks are a good diversifier or hedge against long-term inflation, you know, if you’re really concerned with It you know precious metals like gold can be a good hedge and not advocating anything in particular, but just the principle of diversification real assets that kind of principle exactly.

 

Alex: Definitely.

Should I invest more defensively until after the election? [06:17-08:42]

Anthony: All right number four. Should I invest more defensively until after the elections a big one? What do you think?

 

Alex: Yeah. This might be one of the biggest question of them all. I feel like we’re getting it almost every time we talk with clients or prospects so really good question one that’s difficult to answer in a vacuum, right? Because I think the biggest thing with a question like this is how does it relate to say someone’s financial plan, you know, I’d say that bigger thing with it too is you don’t need to be making large changes, right? I mean each person’s plan in situations unique, but you know being someone who goes I’m you know, a very aggressive growth oriented investor, but I’m getting skittish or nervous and I’m going to go to all cash, right?

That’s a very different situation than saying. I’m an investor growth investor. I’m getting nervous. I feel like I need to make an adjustment. We have that conversation. We figure you know, let’s make a plan. Let’s make a plan around this, okay. Maybe we pull back like 10% and then let’s make a game plan. How do we move forward from here? So in a couple months, let’s check in.

Let’s see how you’re feeling. Do we need to continue to trim off or are we feeling a little bit better? That’s a much better plan of attack than just going I’m going all defensive. That’s it. I’m throwing in the towel and then we’ll invest later.

 

Anthony: Right trying to avoid those extreme situations. Capital group does a good job of researching elections, and I was looking at some of their statistics to and you know, basically, they said that that with the S&P 500 out of 18 of the last 19 presidential elections, a hypothetical $10,000 investment was basically positive 10 years later and you know, the only time it wasn’t was actually with our with the second George Bush. So you really have like the tech bubble bursting on the front end and the financial crisis on the back and so it just sort of ended up a little bit negative at that point in time.

Now that’s just stats and everything but that’s why you have to really consider your financial plan. What are you investing for? Is it for the long term or we talking short term money instead?

 

Alex: Yeah now honestly that’s what I love That’s the human aspect of it. It’s you know, we talked about stats and we can say stats do this but when it gets down to it and working with an advisor talking with them, I mean if you’re not talking with an advisor, you know, we can certainly help you with this but it’s sitting down and going how do we make a game plan from here? Not just, “here’s what the stat says.” But how do we work for your situation? So yeah, I really liked that bit.

So anyways, we hope you enjoyed this. We hope it was helpful. This is our segment cut through the noise. If you have any questions, you’d like us to answer please drop us a comment below or you can send us an email admin@onedegreeadvisors.com. We look forward to talking with you.

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