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Sold Half of Apple Position

January 25, 2013

Today, I sold one half of my position in Apple at $460 per share.  Why did I sell and why only half?

AAPL Chart

If you have followed the news regarding Apple stock in recent months, you will know that it is down significantly from the high reached in September of last year.   This is a very interesting study in how investor sentiment can change and how it can dramatically alter the fortunes for a stock.  On the way up, everybody loved Apple and the Wall Street  analysts were beating up each other in order to be the next one to up their price target for the stock.  Then after the iPhone 5 became available, the doubts started creeping in.  The new mapping application was disappointing.  Why didn’t they give it a larger screen?  Apple has lost its innovation.  Margins are being compressed.

Since then it has been a steady drumbeat of negative sentiment about Apple and its products.  As the end of 2012 approached, many postulated that some of the selling was occurring in order to book gains before a potentially higher capital gains tax in 2013.  I suppose that many like me held on to see what the company would report for their quarter ending December 2012.  That report came late in the day on January 23, 2013.  The results were largely in line with analysts expectations but the report was viewed as very disappointing and the stock was knocked down by 10%.  Unit sales for iPhones were up 29% compared to the same period last year.  However, given that the 2011 quarter was shorter by a week, unit sales increased even more.  Similar story for iPad unit sales, up 48%.  Wouldn’t you like to own a company with this kind of sales growth?  Of course this growth will not likely continue, but Apple’s stock has already been adjusted to reflect lower growth expectations.  What I was not recognizing is that there was almost no way the quarterly results would be viewed as positive, no matter how good they may have appeared.  That’s where we’re at with the sentiment for this stock.

The way these things go, the stock must be pounded until almost no one wants to own it any more.  The selling must continue until it is so absurdly cheap relative to its earnings that its appeal can no longer be denied.  When will that be?  I don’t know.  Maybe not until the stock reflects little more than the massive amount of cash sitting on the company’s balance sheet, currently at about $130 billion.  And, by the way, that’s another negative.  Why don’t they do something with all of that cash?  Return it to shareholders or invest it in some new growth engine, perhaps buy Twitter or Netflix.

So by only selling one half of my position, I will realize some of the gain that I currently have in the stock and by retaining a position, I will still have an interest in following the story.  What is needed to change sentiment to the positive?  A new exciting product, an acquisition or investment that is viewed as providing a new growth initiative or just doing something positive with the cash horde or the stock becomes so cheap that buyers can no longer justify not owning it.

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From → Stocks

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