Apple's iPhone: Buy the Hype, Sell the Launch?

Pace the usual market dictum of "buy the rumor, sell the news", the usual way to play Apple (AAPL) stock around the iPhone launch would be to hold the stock until a few days before the launch, and then sell it, perhaps as late as the day before launch.

Looking back to Apple's iPod launch on October 23, 2001 -- which might not be the the best example, given the proximity to 9/11 -- Apple stock climbed 6% in the week leading up, and then fell 4.6% on the day the new iPod was unveiled.

Will the same thing happen with iPhone? A naive read says "Yes", that we're seeing the run right now. Apple stock is up 21% in the last month, and almost 5% in the last week. So, be selling your Apple stock on June 28th, right?

Sure, sell some -- and sell some now, for that matter -- but not so fast. The iPhone launch, like few other tech products before it, has become, for better or worse, a cultural phenomenon. There will almost certainly be people who hear about the launch via front page stories in the NY Times, etc., about long lines expected at AT&T/Cingular stores, and so on. In that regard it will be more like Microsoft's (MSFT) Windows 95, a cross-over product that got buzz far beyond the tech community.

So, how did Microsoft's stock do on Win 95 launch date? It climbed 1.2%, and a further 5% over the next week. Despite tons of hype about Win 95's release, the company's stock found cross-over retail appeal post-launch.

While I won't argue that Apple stock will do the same, I also think the behavior of Apple stock around iPhone launch could violate more than a few naive rules about how you should trade tech company product launches.

AAPL 1-yr chart

Comments

[Hayweed:]

I have sold most of my AAPL as the move up here seems too much. Considering the market as a whole has had a big advance, I think shorting RIMM is the safer play, as Rimm has a lot to lose in the iPhone is a big success and they have gained so much that if the iPhone was a flop, the stock will not rise much.

2007 Jun 08 08:19 AM

[Tom B:]

I'm holding my Apple until they achieve a more rational marketshare in their core business, computers-- say 20%. I love my iPod; I expect lots of people will love their iPhones-- but the purpose of all these gadgets is to get people into Apple stores, where they can see the bright, shiny Macintoshes. That will be Apple's LONG TERM growth driver.

2007 Jun 08 08:46 AM

[Malkiel:]

As a retail investor whose positions aren't large enough to create liquidation problems, I've become a big believer in the software-generated decision: have your accounts with an online broker whose software platform is sophisticated enough to execute trailing stops and set a stop in a range that will let the market squeeze as much out of the play as your sense of risk will allow. Instead of making an arbitrary decision to sell his shares Hayward might capture a move of the kind described by Paul by setting a trailing stop of, say, $2/share on his AAPL shares and let the market stop him out. There may yet be an awful lot more upside to a frenzy story like this, why not milk it with the tools at our disposal?

2007 Jun 08 10:30 AM

[Hayweed:]

Malkiel:

Not a bad suggestion but as I constantly move in and out of AAPL shares depending upon the market and the news flow. I began selling above $100 when the stock floundered after earnings. As it continued to rise almost daily, I just kept selling until I ran out of stock last week in the 120's. I have since been buying and selling it daily but not holding it. I am Holding the Rimm short as I think they will feel more pain from the iPhone than wall street thinks and at this point the iPhone is about baked into AAPL's price at this point. Plus, search Rimm on stock sites and there is nothing negative. Just positive talk about the iPhone making smart phones more mainstream. The iPhone will make Rimm's products look like pagers do now. Email is not enough to create a platform but email, phone, internet, camera, ipod is a game changer.

2007 Jun 08 01:48 PM

[bradah:]

Malkiel, I've often thought of the trailing-limit-sell as a great way to protect profits. I bought in the 40s and don't want to lose any more upside potential. Many sold long ago only to wish that they had held......never thinking the stock would go this high. Now, analysts have $160 targets? Whoa!

Any way, I was wondering if you/someone might point me to some good sites on how these trailing stops work (and how to utilize them well).

One other question. What happens if you set one of these stops and the stock splits?

2007 Jun 08 10:22 PM

[Hayweed:]

Problem with the trailling stop was that when the stock spiked to $95 in January to then fall to $80 you would have been stopped out and missed the last 30 points. You can use them but you can get burned when the stock drops temporarily. You can also get whacked like the day the iphone delay rumor came out and the stock tanked $4 intraday. I prefer trading on the news and buying and sellling based on the stock compared with overall market trends. Trailling stop Might work though for people not watching daily.

2007 Jun 09 10:31 PM