Time To Sell Apple Stock

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Includes: AAPL
by: Income Machine

Summary

Apple cruises to another all-time high and perhaps it is time to take chips off the table.

I explain the merits of buy-and-hold investing and why I am not concerned by downgrades or technical analysis.

Simple strategies are often dismissed as unsophisticated or reductive; however, there is not just beauty in simplicity but there is evidence as well.

The old proverb: An apple a day keeps the doctor away is a simplistic way to convey the health benefits of the delicious fruit. We know that simply eating an apple a day won't necessarily prevent someone from getting sick. But we can agree it's a heckuva lot more likely to keep the doctor at bay than smoking two packs a day.

The colloquial use of the proverb has broadened to mean that eating right consistently will lead to a healthy life. At its "core", the saying remains quite simple. It may not be interpreted literally, but the message remains as true then as it is now.

Like the adage above, there is a simplistic investment principal I ascribe to: Buy and Hold. I often combine that with Never Sell at the end for emphasis, but really that is redundant. If you buy-and-hold stocks, you are not selling. But for so many investors that simple strategy is "simply" not good enough.

They suffer from ennui, an itchy-trigger-finger and trader-itis…and often delusional timer-extraordinaire syndrome (there are a litany of side effects from being such an expert). They know when to take chips off the table and they lament the follies of such a meek strategy claiming the market is much too complex a place for such a reductive theory.

It is notable that as I am drafting this post Apple (NASDAQ:AAPL) stock just notched an all-time high of $177 (via Schwab):

As I watch my portfolio climb in tandem as a long-term Apple shareholder, I was curious what the returns looked like if someone had simply abided by the simplistic strategy detailed above. I didn't have to search long before I came across others who wondered the same:

Picking Losers

While it is easy to marvel at the incredible returns of a select stock by simply doing nothing after purchase, it does little to dispel the alluring market-timing infatuation nor does it allay fears that you will be stuck with the next Eastman Kodak (NYSE:KODK) or General Motors (NYSE:GM). No stock-picker is immune to picking a few duds along the road. And for those strict adherents to the never-sell strategy, they would have lost the entire investment with both of those companies.

100% loss.

But let's do some simple arithmetic, shall we?

If I invested $100 equally in 3 companies: GM, Apple, and Eastman Kodak in 1980 where would I be today?

Investment 1 GM: $0

Investment 2 Apple: $28,000 (excluding dividends)

Investment 3 Eastman Kodak: $0

Total: $28,000

I don't know about you, but that math looks pretty favorable despite 66% of the investments going to 0. But I used Apple as my example; that will skew the results, no?

Try the same thing with American Express (NYSE:AXP), Nike (NYSE:NKE), International Business Machines (NYSE:IBM), or Boeing (NYSE:BA). You'll find the same trajectory with broader indices like the S&P 500 and Nasdaq as well. While Apple's climb may be unusually supreme, evidence points toward buy-and-hold delivering lucrative rewards.

Downgrades and Analyst Chatter

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This morning, Nomura Instinet downgraded Apple saying: "the stock's gains for the iPhone X supercycle are in the late innings." Nomura isn't the first to opine. This comes after Barclays and Deutsche Bank doubted the mere existence of the supercycle. In June, Mizuho Securities downgraded Apple and slapped a $150 price target on the stock.

But wait, there's more.

Pacific Crest downgraded Apple in June on expected weaker iPhone sales. UBS chimed in with perceived brand erosion and weak purchase intentions. I could go on and on, but I think you can see where I'm headed. All this squawking and chatter may stir the pot and (not?) justify the analysts' paychecks, but these analysts are not only often wrong, but also they're near-sighted.

And unfortunately the lack of long-term thinking has infected many investors as well. I have an orthopedist buddy who often texts me seeking tips on stocks to buy. However, after I explain the rationale why I purchased some shares, he will follow-up with news that he exited the position after just a few days for a small gain. He just doesn't have the patience to slowly build a stake or, needless to say, reinvest any shares.

In my experience, you can tell a lot about a trader or investor by asking how many shares they've reinvested.

This all leads me to one of my favorite quotes from Paul Newman: "Why fool around with hamburger when you have steak at home?" There are far too many folks chasing nickels when they should be slowly building something much more profound and earning a dollar. Newman may have been referencing marriage; however, like the apple a day quote, its meaning has larger applications.

I think it is best to ignore the noise of analyst downgrades and stick with the evidence that demonstrates quality companies like Apple tend to grow over time. Yes, they experience setbacks and cycles; however, if your vantage point is long enough, you will come out ahead by simply doing nothing but holding and reinvesting.

Technical Analysis and Sell Windows

But what about the charts? I can find hundreds of examples of articles claiming Apple's stock is likely to head this way or that based on oversold or overbought conditions, strong support, or Bollinger bands.

Each time I discard the information. Not because I don't find it interesting, I do. But because it doesn't align with my intent to partner long-term and endure the natural ebb and flow of the market. Let's take a peek at just the last 5 years (via Schwab):

That's some remarkable volatility in a fairly short time frame. I spot at least four pretty sizeable declines along with the enormous trend of gains. For some, it was time to reassess and sell their stake during those troughs. A lucky few were able to sell at the peak of July in 2015 and buy back cheaper a year later. Others held and reinvested their stake at lower prices. And perhaps many more averaged in or initiated a purchase during this window.

For those who sold at any point, they would be hard-pressed to claw back a low re-entry buying point. Do you think Apple will hit $60 a share again?

What about $95? $150? I'll leave that speculation to the traders and chartists, but I can confidently state that I will not be selling my stake whether it does or not. I am not seduced by the short-lived technical fluctuations or the marketers that peddle such analysis. Like the analyst who downgraded Apple today and the many more who will in the future, I remain resolute and believe that long-term there is ample evidence on my side.

When is the best time to sell Apple stock? Never. Yet too often simple strategies like buy-and-hold are rebuffed or dismissed because they lack the sophistication or rigorous analysis attributed to other theories. But there is not just beauty in the simplicity, there is considerable evidence behind it as well.

An apple a day will keep the doctor away - you can only achieve that if you hang onto your apples.

Disclosure: I am/we are long AAPL, IBM, NKE, AXP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.