Salesforce soars on Dow Jones news, plus big stock splits in Apple and Tesla

Poppy's Picks & Updates

This month Poppy recommends Teledoc Health (TDOC). Lots happened this month, so I'll cover Teledoc in depth next month.  

Dow Jones Industrial Average Changes

I'm sure you've heard of the Dow Jones Industrial Average, or just "the Dow." It's a stock market index that aims to reflect the US stock market. There are other indexes for other countries and all sorts of business categories. The Dow has been around since 1885 and tracks 30 large American companies, which the index-makers sometimes swap in and out. This past month, they dropped Exxon-Mobil, Pfizer, and Raytheon, and replaced them with Salesforce, Amgen, and Honeywell. This is the first change in seven years to the 30 companies in the Dow.

Caitlin and Spencer both own Salesforce (CRM), which stock rose 26% (!) on the day the news broke that it was getting added to the Dow. The stock price shot up so much because when companies get added to an index, index fund managers have to buy the stock out of obligation. The goal of an index fund (which is a specific type of mutual fund) is to match a market index. So every index fund that aims to match the Dow Jones must buy Salesforce (and Amgen and Honeywell), and sell Exxon, Pfizer, and Raytheon. Index funds hold trillions of dollars, so obviously, the massive change in demand moves the stock prices a lot.

Stock Splits
Both Apple (AAPL) and Tesla (TSLA) split their stocks this past month. Companies typically do this to make the price of a single share more affordable. Tesla was trading at $2300/share, which eliminates people who only have $500 to invest from buying it. Some brokerages let investors buy fractional shares of companies, which eliminates the need for stock splits, but many brokerages do not. How a stock split works: if you hold 1 share worth $100 before the stock splits 2-to-1, then after the split you own 2 shares worth $50 each. A 4-to-1 split (like Apple did) would change 1 share worth $100 into 4 shares worth $25. Although a regular stock split does not change the intrinsic value of a stock, companies generally see a positive bump in their share price after they split. Post-split, Apple was up 3.39% and Tesla was up 12.5%, even on a day when the Dow Jones (an index for the broader US stock market) dropped. This bump is both due to investors who can now afford to buy the stock, and probably also because of our irrational human perception that the stock is now cheaper.
Trades

• Mikal Motorcycle dumped Boeing (BA), and bought Tesla (TSLA). Tesla jumped 12.5% on Monday, so he is now back positive over $1,000.
  
• Annika, Brenna, Lindsay, Chloe, Milena, and Bryan are still sitting on their $1000 in cash. Check out Teledoc Health (TDOC)!
  Please remember to update the google sheet detail tab when you buy/sell something. I look at the revision history each month so I can include your trade in this newsletter. The summary tab is at the bottom of this email as a picture and the live link to it is here.