For all you traders out there, we missed a golden opportunity with Apple (NASDAQ:AAPL) in the week of March 14th through the 18th. We can all learn from this experience and take better action in the future. A good saying among traders is: "This is a big mistake I made, but it won't be my last." Be assured that there will be similar situations in the future, and you will need to be on alert for it.
I actually panicked with the rest of the crowd during the Japanese radiation crisis, and sold a big portion of my AAPL position at $344 on March 15th. I don’t think that was a bad play in itself. The market ended up panicking more in the following couple days – the 16th to the 18th and AAPL went as low as $327. My plan was to buy back in later at lower prices once the panic dies down. Only problem is, I didn’t. The sell-off and recovery of the nuclear crisis in Japan was so quick, I didn’t act fast enough and before I could even blink, AAPL is now back where it was before the crisis, at above $350. I did buy back in a little at March 22 at 338, but I didn’t act as early and buy as much as I should’ve.
They say hindsight is always 20/20, but in this case, I think AAPL's immediate upward bounce could have been an easy prediction. First off, AAPL crushed expectations for its iPad 2 sales. All the technology experts and analysts were talking about how the iPad 2 will dominate the competition and is a better tablet in terms of a cheap price and great value. Over a million iPad 2s were sold in its opening weekend, much more than the 600 to 700 thousand that was predicted by many analysts. This fact was the main cushion that allowed one to buy as much AAPL as they wanted at the temporary lower share price and not worry about it going too much lower. With the great recent iPad 2 news, there was no way the stock would plummet much further than $330, so there was very little downside to "load the boat" at that level.
All of the U.S. stock indices panicked over the nuclear threat of Japan. It’s like nuclear radiation is a buzz word that makes people think about the end of the world. In reality though, a fire at a couple nuclear plants in Japan are going to have very little impact on Apple, or any large U.S. company. During this nuclear crisis, it was always widely spoken and agreed upon among experts that it isn't nearly as bad as Chernobyl was. When looking at the impact on most big U.S. companies, sure some of the sales might be lost in that area of Japan, but the world is much bigger than that part of Japan, and the vast majority of sales are done in the U.S. anyways.
At the time, I was thinking that we may go through another crash because of all the bad news coming in and the Japanese crisis would be the straw that broke the camel’s back. To be sure, there are several problems in the global economy. Rising commodities prices, turmoil in the Middle East, high federal debt, a bad housing market, etc. But these aren’t enough to sway the market in the near term as high earnings and consumption continue.
What happened during the financial crisis of 2008 was a much different kind of crisis. The crash of real estate and all the mortgages defaults was like a big earthquake to the foundation of our financial system. Banks went out of business, businesses lost access to capital, and the domino effect caused people to stop spending which sent more businesses insolvent. In comparison, a radiation crisis in a small part of Japan is very minor when looking at the big financial picture.
The thing with the earthquake, tsunami, and radiation problems in Japan, is that everything happened so quick. One day the Nikkei index is down 11%, U.S. stock indexes are down 3% in one day, and financial articles are hinting that the radiation in Japan may cause another crash. Then a week later, everything is hunky dory again. With something like this, one has to act fast. You have to change gears quickly. I was correct in my timing to sell Apple at $344 because the panic had started to gain momentum continued to gain momentum.
Another reason for AAPL’s temporary decline was because one rogue analyst was talking about how demand was shrinking in China. This one analyst, who may be right or wrong in his thesis, contributed to the panic. Did everyone so easily forget how Aapl sold 1 million iPad 2s that past weekend? The reason why this analyst got so much extra attention because he is pretty much the only one with a bearish view on Apple! This was crazy timing for this bearish analyst. The combination of this one analyst and the radiation crisis in Japan opened up a buying opportunity from heaven for AAPL. What I should’ve done at that point is a couple days later, picked up Apple again at $330, or even buy calls for leverage, as further downside risk was so slim at those low levels.
I didn’t realize that this kind of crisis would be so short lived. The reason why is because the economic fundamentals are still as strong as ever, and the market is smart enough to know that. Only when the security of the fundamental economy is directly threatened will we see another crash that lasts for more than one or two weeks.
We can learn from this story in the future. Be on the lookout for bad news and see when and in what sectors the market panics. When that happens, ask yourself: "does the bad news significantly affect the profitability of this sector or stock?" If the answer is no, then you have your buying opportunity. Maybe wait it out a couple days to see if the panic gains speed and a selloff continues. But don't wait much more than that, because as soon as the short term panic ends, investors will wake up and say: "fundamentals are still strong" and the bad news will be a distant memory.
For example, right now uranium and nuclear energy stocks haven't recovered from the uncertainty regarding the future of nuclear energy. Investors are worried that policymakers will make new restrictions on its production. Why don't companies just build nuclear power plants in places where earthquakes don't happen? This sector could be a buying opportunity right now. With all the issues concerning oil, nuclear energy is still a very necessary resource and will still grow and be used. The market isn't in a panic over this right now, so there's no need to act fast, but it's definitely something to research and see how much the nuclear energy sector will really be affected in the long run.
Disclosure: I am long AAPL.