I have been on a serious roll lately.
In particular, I called the two biggest shorts of 2011 --I called Netflix (NFLX) and I called Research in Motion (RIMM). The $10,000 portfolio I set out to double by the end of the year appears poised to do just that, but on a much faster timeline. As such, I am adding followers on Seeking Alpha at a pace I never could have imagined when I first began contributing to the site.
When things look this good, I get concerned. Being the introspective and anxiety-ridden person that I am, I tend to take opportunities like these to put myself in my place. In investing, no better way to humble oneself exists than to reflect on past failures.
One of my biggest came on April 3, 2011 in an article I titled "Why I'm Selling Apple". I called the top -- of the bottom -- in Apple (AAPL) stock. The day after I wrote the article, AAPL closed at $341.19. For just over a week, it appeared that I had made the correct call. By April 18th, AAPL touched an intraday low of $320.16.
From there, AAPL tagged $354.99 on April 26th. It proceeded to pull back and run and pull back again before running -- with a couple fits and starts -- to Friday's close of $400.50, just $4.00 short of its 52-week high.
Five months burnin' down the road, I thought it might be instructive to revisit some of the points I made when I sold my position in AAPL -- albeit for a nice profit. This exercise can also serve to zap the euphoria of my recent success.
In Why I'm Selling Apple, I wrote:
I found myself openly rooting for the stock to run. Whenever AAPL dropped or negative news crossed the wire, I reacted with emotion... In my trading notebook, I scribbled "emotional detachment" on page one. Enough said.
I stand by this reasoning. Disciplined traders and investors follow rules. In this case, I left money on the table, if you look at the AAPL stock trade in isolation. However, there are plenty of other cases where breaking the rule of "emotional detachment" could have cost me.
For instance, in late July I sold out of a long position in Sirius XM (SIRI). I thought I had a winner given the pre-earnings run the stock often makes. The chart broke down on July 15th. A mix of not wanting to have weak hands and emotional attachment kept me in the stock and some call options a couple weeks too long.
I unloaded in late July at roughly $2.25. Part of me wanted to hold tight, as my emotions kept hinting "reversal." Luckily I used discipline and sold. If I did not, my calls would have expired worthless, or close to it, and I would have been stuck with shares of a sub-$2.00 stock.
In other words, as traders and investors we put rules in place for a reason. We should expect to lose some (e.g., AAPL) because we followed our rules, but, the rules exist to keep losses small (e.g., SIRI) and never catastrophic. It's trading and investing 101, but the urge to break one of your rules -- just this one time -- comes on strong in the heat of a moment that can last days or weeks.
In the above mentioned Apple article, I also wrote:
Apple's problem is not just that investors expect big things from the company, but they take them for granted. Companies like Open Table (OPEN) and Netflix enjoy a bit of a different relationship with investors. People don't expect great things as much as they anticipate or hope for them.
While somewhat narrow, the distinction remains important. If Apple misses earnings, it's like Alex P. Keaton coming home with an 'F.' If Apple meets or even beats, observers break out into the music of Janet Jackson.... For all intents and purposes, it's over for Apple...
In today's market, AAPL should not have a P/E of 20. It should not trade at $345 with tons of cash, no debt, billions in revenue and profits, massive earnings growth, and enormous social and cultural cache. It should not exhibit bullish signs on a chart, only to reverse course suddenly on a rumor, noise, or nothing at all. You can call AAPL undervalued until your blue in the face, it doesn't change the warped psychological sentiment working against the company and holding the shares back.
I am also concerned about the post-Steve Jobs era. No offense to Tim Cook and the rest of Apple's executive staff and foot soldiers, but I don't see them being quite as... Jobs... While Apple immediately after Jobs might be successful as well, I think, not being able to get a break, the stock will dip further once he's officially no longer part of the company. The optimistic view holds that the overhang of Jobs-related uncertainty will be gone, paving the way for the run to $1,000. Investors will replace Jobs' uncertainty with an indirect and vague anxiety about the future. It's just what the street does to Apple, right or wrong.
For all intents and purposes, it's over for Apple. Ouch. Looking back, for all intents and purposes, that was a stupid thing to say. I think my points about "warped psychological sentiment working against" Apple still hold. They could come back and torment shareholders again.
That said, I think the point that I missed -- and that several people brought up in the comments section of that article -- is that the "warped psychological sentiment" is a good example of the "rumor, noise, or nothing at all" that I referred to. The fits and starts and pullbacks and dips occur in AAPL largely on noise, not on the basis of the legitimate concerns that dog most other companies.
In terms of Apple being able to dominate going forward in a "post-Steve Jobs era," well, let's just say, that was probably a sketchy reason to sell. I think if Apple slips,investors will receive clear warning and be able to unload their shares, if need be, without taking a considerable hit.
In addition, as the Jobs story has unfolded, right down to him officially stepping down as CEO, my tune has changed. The more I think about it, the more I believe something I wrote last month -- Jobs is still as much a part of Apple decision-making as he ever was. In fact, I believe Apple is quietly running a RIM-like dual CEO operation that actually works.
This serves several purposes. First, it removes the immediate uncertainty of what Jobs leaving will do to the company and its stock. Second, it keeps Jobs very much in the loop of innovation and big decisions. And, third, it sets the table quite nicely for the day when Tim Cook actually needs to take on the CEO role without Steve Jobs in the building.
I closed "Why I'm Selling Apple" with the following:
I think AAPL is a much better stock to day or swing trade, as of late. I have seen some success day trading AAPL call options. Given how the stock swings, I think, with some careful attention paid to strike prices and timing, you could do alright buying calls when AAPL settles firmly on a support line and buying puts when it hits a real wall of resistance.
If it didn't tie up so much margin, I would be wholly on board with the idea of selling AAPL put options...
In conclusion, I still admire Apple more than just about any other company.
And I still do admire Apple. How could anybody not? The company changed each and every one of our lives, even if we do not own one of its products. If you do own Apple products, as I do, you know this firsthand.
If you review my article history, you'll see that I have had more success day and swing trading AAPL and selling puts, even if only in theory or in the $10,000 portfolio. I made a profit when I sold my shares back in April. I also left some cash on the table. While I have made money elsewhere along the way, the better move would have still been to have kept my little lot of 128 shares. Or maybe to have just cut loose half of the position.
In any case, I do what I can to learn from experience. I intend for my articles to help other investors do the same. Whether you learn from my experiences or something I bring to the table prompts you to reflect on your own or consider multiple perspectives going forward, it's all about not getting too high or too low. And, most importantly, never taking yourself too seriously.