In a Harvard Business School lecture given by Mark Sellers, we gain the following insight into what separates the great investors from the average ones. He says:
The rarest trait of all is the ability to live through volatility without changing your investment thought process. Most people have a terrible time not selling their stocks at a loss, they can't average down, they can't handle short term pain even if it would result in long term gain.
The panic instinct steps in and shuts down normal brain function including the ability to buy stocks when others are panicking and sell stocks when others are euphoric. Everyone thinks they can do this but when October 19, 1987 comes around and the market is crashing all around you, almost no one has the stomach to buy.
If you're an investor with Apple (AAPL) in your portfolio, it's time to make some important decisions. Many Apple bulls have sold out of the stock because of the widespread financial panic, but as this period of capitulation draws to a close it is time to position yourself for the bounce.
If you own ETFs with Apple in them you should increase risk and move to AAPL stock. If you own the stock you should buy in-the-money call options. If you already own these, then you should move some capital to out-of-the-money call options. This is the moment to increase your risk/reward level.
As an options strategist, I am very cautious about discussing option LEAPS in articles because of their volatility, but this represents one of the few times I will do so. We at Lone Peak Asset Management are buying a mix of the following call options: January 2010 $140's for 30.00, April 2009 $180's for 6.00, and the most risky of all January 2009 $200's for 1.00.
Option LEAPS should be used to take advantage of market overreaction. This market has gotten Apple very wrong in the short term. As the financial markets stabilize over the next few days, domestic investors as well as foreign investors will begin buying up shares in US companies.
The first place they will look is to those companies with pristine balance sheets and Apple sits atop the list with zero debt and over $20 billion in cash. Next they will look for companies which have been able to maintain high growth through the economic downturn. Once again, Apple is at the top of the list because of their global market share growth opportunities.
Now that the troubled financial institutions have been consolidated into a sector of strength, we will see the first real rally of the year and high growth/strong balance sheet companies will lead the way. The time is now to take advantage of the panicked sell off and make this common sense portfolio move.
Disclosure: Long AAPL