As is the case with just about every stock I have ever watched or researched, the share price has little to do with reality. Especially when the company is in growth mode. Apple (NASDAQ:AAPL) is a remarkable snapshot of the investing world's psychology of a share price.
Back at the end of 2011, Apple began a parabolic move straight up that Apple bulls would maintain was long overdue. I believed that the share price at that time undervalued the company and I wrote several articles articulating my opinion.
A Review Of Apple Articles And It's Ascent
On October 26th, I wrote Apple TV: The Next Really Big Thing.
In the article I pointed out how undervalued Apple was and that the Apple TV was just about ready to become a reality. I stated:
"...I believe that Apple is the next big thing, and taking a healthy bite of it for your portfolio makes enormous sense right now at these on sale prices."
The share price was about $390.00.
On December 20th, I reiterated my strong opinion of Apple with Apple TV: It Will Be A Reality In 2012. Not only did I feel that the iTV would be a product in 2012 (I still believe that by the way) but I also emphasized once again how the share price was far too cheap:
"The PPS of Apple is cheap in my opinion. It has wallowed in a $380-420/share price range since August even as sales of its latest "toys" have flourished."
Little did I realize what was right around the corner. Obviously the fundamentals were crystal clear to me however. The share price was about $380.00.
On February 10th, 2012 I penned Apple: We Ain't Seen Nothing Yet in which I had previously begun purchasing LEAP call options. The share price had rocketed to about $490/share again and I had a long position in the January 2013, 400 strike price LEAP calls.
I was not clairvoyant nor am I a soothsayer, but the fundamentals were still speaking my language.
From that moment, Apple stock went through the roof. Within a week it was over $525/share, then $550, then $600 and not long after that it passed $625/share in a move that now was more of a momentum move than a fundamental one. Even though the fundamentals were still obviously remarkable, the share price was rising too far too fast and that should spell danger for investors in any stock.
On March 7th, I outlined my strategy to sell put options as I took profits in the LEAP calls. Apple: Too Far Too Fast was my first article in which I began to see the signs of a stock getting ahead of itself:
"...Apple had risen in a somewhat parabolic fashion since 11/25/2011 through 3/2/2012. It had a roughly 50% move virtually straight up.
The RSI was over 90 (approaching 100 actually) and I outlined a risk trade that ignored the fundamentals of Apple and focused strictly on the overbought conditions and the herd mentality that existed (and still does) towards the stock.
The bell had sounded to me but the Apple bulls abounded and I followed it up with part 2 of that article. Things were getting too crazy and I believed that investors should begin thinking about actually keeping some of the wonderful profits they made when I penned Apple: When The Music Stops, as well as Apple: Take Profits Before You Lose Them.
One would have thought I had become the devil incarnate! All I did was outline the risks:
- The herd mentality that seems to be occurring. Everyone wants to take a bite of the Apple, including me.
- The constant upward price movement of the shares without any significant correction phase.
- The RSI fluctuating at levels over 80-90 and nearing 100 on a daily basis.
- The "Law of Diminishing Returns."
At the same time, I had completed several more successful option trades and the share price peaked at $644.00/share.
The bottom then fell out and the price plunged prior to the most eagerly awaited earnings report I had ever witnessed. Once again it was a zoo atmosphere and the media coverage was ridiculous. The reality at that time was the exact opposite as the previous move up. Apple shares had fallen too far too fast, and prior to an earnings announcement that was to make history, it was time to go against the grain and buy call options again (LEAPs) just before earnings.
I was lucky to have guessed right, but when we take a look back, was it all really just luck?
The major problem with investors is that most do not know when to sell, and many will buy just because everyone else is. Obviously the exact reverse needed to be done with Apple at its zenith; sell when the herd was buying and buy when the herd was selling.
It was the fundamentals that told the story, not me. It was the action of the share price that told us what to do, not me. It was the individual investors' choice to make some decisions for themselves, not mine. I just wrote the articles.
What About Apple Now
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At $530.00/share I believe Apple is now trading where it should be. The volatility could be a good thing for the day traders out there I suppose, but not for investors to try to time the market.
Here is the thing however; nothing has changed with Apple's fundamentals one iota. Say whatever you want about Tim Cook and his style (which I happen to like) or how the new management team will handle Apple's future. In my opinion, Apple's future is as solid as a rock. There are many new products that we already are aware of and probably some we do not have any idea about.
Apple has become bigger than one man or one management team. Apple has now become an entity in and of itself, and should be considered for a long term investment, not a momentum play.
It is not an inexpensive stock so I will probably be taking another LEAP position in the January 2014 550 calls. The share price could move sideways through the summer but as the new products we know about are rolled out, the price will once again begin reflecting the fundamental value of the company.
I just hope it takes 9 months, not 9 minutes.
Disclaimer: Please remember to do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any securities or stocks, and is the opinion of the author.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.
Additional disclosure: My position will be in LEAP call options