Entering text into the input field will update the search result below

Apple And The Disposition Effect: What To Do If One Stock Is Taking Over Your Portfolio

Oct. 03, 2018 8:00 AM ETApple Inc. (AAPL)AMZN, GE149 Comments
Logan Kane profile picture
Logan Kane


  • Apple is the most widely held stock among retail investors.
  • Rough estimates place 1 in 5 individual investors owning Apple and those who do typically have a little shy of 20 percent of their portfolio in the stock.
  • The dramatic outperformance of companies like Apple and Amazon often catches investors (and fund managers) by surprise, so they make suboptimal moves.
  • Letting winners ride may somewhat concentrate risk, but selling winners too soon and keeping losers create a bigger problem known as the disposition effect - inadvertently tilting your portfolio towards losers.
  • Understanding statistics and investor psychology is the key to beating the market. Investors may want to consider letting winners run further before selling.

The dramatic performance of companies like Apple and Amazon often catches investors (and fund managers) by surprise, so they make suboptimal moves.

If you bought Apple (NASDAQ:AAPL) 10 years ago, congratulations! You're up over 14 times your original investment. As Apple is the most widely held stock in America, there are a lot of people in this position. But, if you're one of the lucky ones, you probably noticed something peculiar going on in your portfolio. The value of Apple shares has steadily risen to the point where many investors have 30, 40, or even 50+ percent of their portfolios in Apple. In fact, if you put 10 percent of your portfolio in AAPL 10 years ago and 90 percent in the S&P 500, today your portfolio would be roughly 38 percent AAPL. If you did the same thing with Amazon (AMZN), you would have 54 percent of your portfolio in it.

Too much concentration of risk in one stock is a problem. But academic research shows a strong momentum effect-winning stocks tend to keep rising. My personal theory is investors' preference for cashing in on winning positions actually creates the momentum effect, as uninformed investors sell stocks when they should be buying based on the fundamentals, simply because the stocks are going up. I believe that one of the main reasons why investors underperform is that they fail to understand just how skewed equity returns are towards winning stocks, so they inadvertently sell winners and plow money into losers. Understanding the psychology around this can help you achieve superior investment returns.

Why you should typically let your winners run.

Research shows that the best performing 25 percent of stocks account for nearly all the market gains over time, and the top 14 percent of stocks return over 20 percent annualized. Meanwhile, a decent percentage of stocks simply fail. Investors who go out and pick 5-10 stocks for their portfolio

This article was written by

Logan Kane profile picture
Author and entrepreneur. My articles typically cover macroeconomic trends, portfolio strategy, value investing, and behavioral finance. I like to profit from the biases and constraints of other investors. Paywalled articles are available along with 1,000+ other authors by subscribing to Seeking Alpha Premium.You can read some more of my work for free here on my Substack.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (149)

this is what i have done. i bought apple about 20 years ago. my financial firm recently told me that my apple holdings were high, a fact of which i was quite aware. for years, i have sold losers for funds. unfortunately, i'm running out of losers.
This article can be summed up as:

"Diversification is stupid because one stock has had an amazing run for the past 15 years."

Really? It's easy to be an investing genius in hindsight. Think about all the "geniuses" who were overweight in GE, or Enron, or Lehman Bros, or PanAm, or...

Hey, I think it's great that the commenters in this article have made a boatload of money in AAPL, but don't think for a second that this makes you a genius or that basic laws of investing no longer apply. You were just lucky.

Also, the author's statement that selling winners contributes to the momentum effect isn't logical at all. As sellers increase, the price should go down, not up. Econ 101.

Flame away.
Mathematical Investor profile picture
I don't think that was what the article was about.

My take on the article is that it is sometimes not smart to listen to the "smart" money and sell a wildly successful stock because other people think it's too risky.

You can employ a "never sell your winners" strategy even if you're diversified. I hold 20 stocks (including AAPL) and 4 index funds. AAPL is my No. 1 holding (8%) and best performer ever (I'm up 16,000%). Why would I sell ?
> You can employ a "never sell your winners" strategy even if you're diversified.

Only if ALL of your stocks are winners, obviously! Sounds like you have a lot of other good stocks if AAPL is still only 8% of your portfolio! Congratulation to you, no sarcasm intended.

One commenter said something like, why would you sell your winners and reinvest in the other crappy stocks in your portfolio? My first instinct was to reply, "Why are you buying crappy stocks?" But before I made that comment, I remembered that you can't know in advance which stocks are going to be crappy and which are going to be great. Which brings us back to my original point.

Now I can see your point that, once a stock clearly stands out as great, it might be good to let it ride. But letting it become an arbitrarily large portion of your portfolio, as some commenters seem to have done, is taking a huge risk. The history of the market is littered with the carcasses of "sure things". As soon as everybody believes it's a sure thing, that's the definition of a market euphoria.
@davidbwagner, what companies are among the “sure thing” carcasses and how do they relate to Apple’s business today? Thank you.
Sunil Shah profile picture
Watch out for article about to be published here:
"Buffett Should Have Skipped Apple (And Bought Micron Instead)"
Great article if i say so myself !
From Article:
"My message for the Oracle of Omaha
Dear WB,
As a loyal devotee of your incredible investment wisdom and track record, I feel compelled to write to you. Firstly, some press claims that it wasn’t you directly WB, that bought Apple but one of your new lieutenants. However a recent CNBC article confirms you would buy it all if you could, so I conclude you were instrumental in Apple’s status as the largest position (about 10% of NAV) in Berkshire Hathaway. As formidable as the task of challenging your wisdom might be, I hope you will read my reservations on your decision, as outlined in this article. The financials are reviewed above. I always smile inwards when I reflect on your quote of a low valuation ratio.
“I’m especially fond of ‘shoe-size’ P/E’s in the 9 to 11 range.”
So AAPL is only a shade larger (TTM ev/ebitda today is 13.4) than your “financial foot’s comfort”, but I attempt to summarise why AAPL’s future prospects refute many of your “golden rules of investment” as outlined in your BRK.A annual letters, which I’ve devoured over my investment career
PS. As an aside, please glance over why you should replace Apple in BRK.A with Micron.
A devotee."
Probably about a nanosecond before that letter was filed in the trash basket.
Sleepless in the Alps profile picture
Guten Tag, Logan!

60% of my personal portfolio is dominated by one single stock (not AAPL) and I am very comfortable with that. In fact I am adding to it at an accelerated rate as it is amazingly inexpensive at this time.

Ja, diversification is a wonderful thing if you do not know what you are doing, and no offense given, but very few retail investors know what they are doing when they try to beat the market. They might as well buy two or three index funds and find other pursuits to while away the time.

So to your point, if your portfolio is dominated by the right stock (and AAPL is absolutely one of the best out there!) do not be afraid. At 17 times earnings Apple is not at all expensive, has superb management, is making an unbelievable amount of money, and still has a whole planet to conquer.

All right. You will now have a good day.

Auf Wiedersehen

yieldhunter196 profile picture
Hallo Helga,

which one is your dominating stock.. nestle? ;)

Gruß in die Alpen
Logan Kane profile picture
@Sleepless in the Alps thanks for the kind words!
Sleepless in the Alps profile picture
Ach, yieldhunter, now that would be telling.

It is not Nestle. Nor is it a tech stock.

And my younger brother works at the New York City headquarters.


And yes, I am the smarter of the two...
Neurology profile picture
This was a phenomenal article. Thanks!!
Larry Hall profile picture
Recently sold just over 10% of my Apple. Reading these remarks and about the Apple-rich portfolios, I think I might have made a mistake. Worth upping the % (already is back at 12) and dumping one or two decent-but-boring holdings. Because this stock is just that good..
konihug profile picture
Thank you very much for this article. Enjoyed reading, and I think I learned an important lesson.
DanoX profile picture
Apples fundamentals, and Apple Watch4's very nice future should keep most people long for sometime.
Logan Kane profile picture
@The Dartboard

I believe investors tendency to sell winners slows the rise in the stock. However, the company's fundamentals ultimately drive the price, hence the momentum effect.

Here's a quality (but extremely math heavy) academic paper on this that I found if you're interested. faculty.som.yale.edu/...
Awesome, thanks. And yes, I do like papers, studies, and refs.
Logan, do you assert that people's selling their winners feeds momentum by driving up the stock price, or by slowing the rise, making it more gradual. It seems to me that a major cause for why stocks move in long trends instead of quick leaps is the tendency to sell winners and average down losers. Is that what you're getting at?
When I retired, I had only four stocks in my portfolio. Why? Because I sell losers and hold winners. My AAPL position, bought in 2004-2005, was definitely dominant at nearly 80% of my small portfolio.

Since retirement, I've sold the lowest performers as I needed cash, e.g., to buy land for my retirement home and to live on.

Result? My portfolio is now 100% AAPL and I sleep well at night.
Huh, wierd. If anything, I am guilty of the reverse problem. I tend to kick stocks to the curb the instant they start to smell bad. Several times that means I got out lower than I could have gotten for them.

However, in the long run I think this has helped me. Almost without exception, the stocks I have sold continued to go down quite a bit after I sold them. I tend to sell stocks due to deteriorating fundamentals. If I am up, it simply makes the decision easier. If I am down, well, it's better to stop the bleeding quickly than to bleed out.
03 Oct. 2018
I've always believed diversification's end-goal is mediocrity.
I'm retired, but have been actively in the market for over 40 years.
My winning solution... dump the losers, let the winners run... period.
My active portfolio is now 100% AAPL. My 401k is other stuff.
I've found that if I keep a 'base' portion of AAPL... i.e.- never sell it, but 'play around' with obvious moves in the stock, I 'usually' win. I will sometimes buy some when it is extremely depressed, (using my margin); then, when the world rediscovers AAPL, I will sell some of the margined stock, and keep the remainder. :)
Works for me, and keeps me interested in the stock.
I recently retired. Apple was > 30% total portfolio. I sold some of my Apple gains to reduce my exposure to about 20%, and invested in blue chip dividend equities to supplement my cost of living. Still with plenty of Apple, but with other solid equities which yield higher dividends such as eom, AbbVie, pg, T, vz, ..........
@rsphillips, that is my strategy, when I retire I will sell some AAPL and rotate into higher yield blue chips for income. I also have some starter positions in blue chips, such as T and about 10% in solid REITs, WPC & O being the main positions. There is more than one way to win, Eh ?

and to piggyback on @billjac, I trade some small cap BioTechs, when & if they run up big, I take cash off the table. And rotate into blue chips. But with AAPL, I am content to let the winner run...
You are absolutely correct. Some solid CEF such as Pdi and PCI and BDC such as Main should be included as well. Good luck.
billjac profile picture
I sold a small portion of my Apple holdings just over 2 years ago because Jim Kramer said he always takes something off the table when he has a big gain. It's up a lot since then and now over 25% of my holdings. At least the proceeds went into another winning dividend stock, not a dog.
Though Kramer has said "own don't trade Apple" shortly before that he'd been all over the map. Said the Apple story "was done" at one point. He's a follower that gets his money from showbiz.
Logan Kane profile picture
A couple of my ex-girlfriends decided to diversify their men. Look how it worked out for them...
@Logan Kane, I have had that very SAME experience, with a couple of ex GFs.... LOL ! Thanks for a much appreciated laugh. And a great article here.

Like many others, I am "overweight" in my APPL position. It accounts for 30% of my total portfolio, today, and I am content to let it run. Might add if there is a significant pullback, otherwise DRIP & hold, for me.
03 Oct. 2018
I too, like most of you have most of my portfolio in AAPL. I have also pondered the issue A LOT
For myself, it seems to be like game theory and logic has let me sleep pretty well.
I would say, Peter from Germany is on the right track for diversity- Diversity only makes sense if you use another vehicle in another sector OF THE SAME QUALITY. For example, say we are going to ship soybeans to China. Should we use two square riggers and be more sure half the cargo arrives or put it all in one good barque? Well, I would only use two if they are equal. Splitting the cargo with one boat of questionable seaworthiness or crew, is foolish and increases the risk of half not arriving at all. I, like Peter, have no idea what stock to pick with the same outlook and safety as AAPL.
2. BLACK SWANS- If the market has a Black Swan event (think Trump), then it doesn't matter, and cash would be your only safety- but you would forgo any potential gains- 2.5% in MM won't cut it- speaking for myself.
2a Sector BLACK SWANS- If tech tumbles, I would argue that AAPL with its low PE, great products, good management will probably recover faster and more completely than many others such as FB or MSFT.
2b AAPL BLACK SWANS- no solution except 2a, and this IS a risk.
3. LOSS of MOJO- I listen to the Quarterly conference calls RELIGIOUSLY. Not just for the words, but for the tone, the temper, the confidence. So far- All is well as has been for years.

In conclusion- Warren B- perhaps the most successful investor in our time, has some pretty straightforward requirements- Good and consistent management- Check. Good consistent growth and profits- Check. Not expensive compared to it's peers (lower PE +)- Check. A Leader in it's field with hopefully a large moat- Check.
If anyone could suggest an equal- in a different sector, PLEASE tell us!
Tao Jaxx profile picture
Nice article. That’s actually the reason passive indexed investing works so well: winners take more and more weight in the index value and dogs fall out of it. Added bonus is the system does it for you. No need to worry about should I sell and if so what. Just sit back, relax and spend time with friends and family. Go Vanguard!
Its a damn nice problem to have. I do not see the need to agonize over having a winner. I am at 61%.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.