Jim Cramer of CNBC said Wednesday that Tesla’s decision to split its stake is beneficial to the market in general, as it could help young people become interested in buying individual shares.
“Any value in the inventory created by this is false,” Cramer said on “Squawk Box.” “But I think the idea of getting newer, younger people involved in the stock market who are not just brainwashed to put money into index funds is great.”
Tesla announced Tuesday night a five-for-one stock split that went into effect Aug. 31. Shares of the electric car maker rose to the news, adding billions of dollars to their market capitalization. Tesla traded higher by 5% early in Wednesday’s session.
However, a stock split does not affect the foundations of a company. But it does reduce the cost of an individual share, potentially appealing to people who may be scared by a high price tag. This may be especially true when playing for Tesla’s stock, which has risen nearly 500% in the last 12 months to trade at almost $ 1,450 a share.
“It doesn’t have to create wealth, but it can create new people who are incoming and young, have we ever needed that,” Cramer said.
Some people have doubted the importance of a stock split in a digital age, where people can buy fractional shares on brokers like Robinhood and Fidelity.
Even so, the host “Mad Money” said that he still believed that there would remain a strong psychological barrier for retail investors if they encountered share prices close to $ 1000. He cited both Google parent Alphabet, which trades at nearly $ 1,500 per share, and Amazon, which trades at $ 3,100.
“It’s just a price card that people do not live on, that they do not buy and therefore miss the run, say, of $ 300 or $ 400,” Cramer later said of “Squawk on the Street,” although he warned people against buying Tesla’s stock ahead of the actual split at the end of the month.
Cramer, who last month applauded Apple’s decision to introduce a four-for-one action split, said there is also an advantage for companies to attract smaller investors.
“The best kind of shareholder you can have is a small person of investors who want to be around, so I’m all for this,” he said.
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