Investors have had the opportunity to increase their stock portfolios eightfold over the last twenty years by exploiting the Stock Split Advantage. Following the 2 for 1® strategy, Neil Macneale has grown his IRA account from $50,000 to $410,509 since he started writing about it in 1996 (as of 12/31/16). One might ask, why isn’t this front page news? This is a 10.9% annualized overall return, far better than all the broad market index funds (think the Vanguard 500 Fund – +8.2% annualized) over the same period.
And then there is the 2 for 1 Index®, now checking in at a 12.13% annualized overall return over 20+ years. The Stock Split Index Fund (TOFR) follows this index and just racked up a 15.23% NAV overall return for 2016.
Here are a few comments I’ve heard over the years regarding 2 for 1.
“Investing in stock splits is just a gimmick – a split adds no value to a company or its stock price.” Technically, this is a true statement. However, it completely misses the point. The mechanics of a stock split are not important. It’s the signal the stock split announcement gives that is the key. This is an insight into the collective thinking of a board of directors. You buy on the assumption that the board is correct in their signaling, with a stock split, that the company is on a roll. It’s nothing short of legal insider trading.
“There is no way to beat the market over the long haul.” This is also a true statement, almost. There are a few exceptions to the efficient market theory and the Stock Split Advantage is one such anomaly. It has been proved by academic study and the twenty-plus year track record of the 2 for 1 Index, that a well diversified portfolio of 30 companies, all acquired within six months of a split announcement, will outperform the market for approximately a two to three year period.
“How is it possible a retired construction superintendent can come up with such a winning strategy when all the best minds on Wall Street have been trying to do this for decades?” Good ideas do come along once in while. Jack Bogle’s idea regarding index fund investing, mercilessly ridiculed by market “professionals” at the time, has turned into Vanguard, the world’s largest mutual fund sponsor and custodian of trillions of dollars of investor funds.
“If trading on stock splits was such a winning strategy, why doesn’t the 2 for 1 newsletter have tens of thousands of subscribers or, why doesn’t the TOFR ETF have a valuation in the $billions?” That is my question. What am I missing? If anyone has an explanation not already covered above, I hope they will leave a comment or get in touch.