Apple: Don't Sell!
- Like I said in my previous analyses, Apple is still undervalued.
- After the shares rallied 120 percent, some investors might think that after this extraordinary rally a correction would be overdue at any time and must occur.
- My approach is that I will not sell. Apple is one of the few companies that I see as an anchor in my portfolio.
- The risk with trimming my holding is much higher than simply keeping all the shares.
Like I said in my previous analyses about Apple (NASDAQ:AAPL), I consider the current course price to be justified and continue to believe Apple will reach some more upside potential this year. Accordingly, the title of my article was: "Apple is undervalued".
Nevertheless, this does not change the fact that many investors are sitting on an extremely high profit and are now asking themselves how they should best react to this. Also, there are uncertainties regarding corona epidemic. The last week has shown how such an "epidemic shock" can affect the stock markets. So why not just take the profits or part of the profits and buy shares again at the next correction of 10 percent or more? Of course, I also ask myself this question, as Apple is one of the most profitable investments in my broadly diversified retirement portfolio. But I have always refused a sale and will continue to do so.
Of course, there is often no right or wrong. Every investor pursues his strategy, has his own goals and his risk aversion. This article is therefore mainly aimed at long-term investors who are uncertain whether keeping the shares is the right thing for them. I want to give them some assistance or some food for own thoughts and show them the approach/mindset they might take to the question. What do I mean when I refer to the right mindset? By mindset, I mean a holistic approach to investing. I would describe it as the most important prerequisite for investing as a long-term investor. Two elements are decisive here:
- You need to know what you're doing.
- You need to know why you are doing this.
Of course, this can be subdivided much further. For myself, I have identified the following four anchor points that can be assigned to these two elements.
- Timing is not possible
- Recession/book price losses are coming
- Stick to reality, not emotions
- Going full in for the long term
Given that, I am convinced that investing is not witchcraft and giving one's thinking certain anchor points can be extremely helpful to avoid emotional actions. This helps especially investors who are at the beginning or generally act more emotionally with money. With these basic principles, it is easier to make meaningful decisions that are less emotionally based. And I believe that it is precisely these aspects that will help you to make the right decision here.
So let's look at the situation.
Yes, it seems like the sentiment is changing a little bit these days. Given the price rally, some may see an exaggeration or even bubble. There may be some analysts who see right now the right time to sell. When you see that many investors are securing their profits, it naturally makes you feel insecure and you are inclined to sell as well. However, and as I said before if the cock crows all day long, it is only likely that it will hit the sunrise. But given my principles stated above, no investor can time the market and this is supported by facts:
Uncertain investors should, therefore, take a look at this chart and ask themselves precisely whether they should sell only because other market participants suspect that the price will fall soon. Furthermore, it is only typical for investors to sell profits too quickly. This is because they don't know their cognitive bias so they subjectively weight the initial profit more strongly than the continuing profit and therefore sell faster to realize the book profit achieved:
(Source: For more information, see the prospect theory)
Yes, the steep rise in the Apple share price screams at first glance for an even stronger correction. Investors who think the same should take into account that the human brain tends to misinterpret exponential growth. But the problem is that price gains are ultimately based on exponential growth. Here we are dealing with a classic cognitive bias:
(Source: Exponential growth)
So let us take this knowledge into account and look again at the share price:
In this case, last year's price rally looks less like a vertical jump, but much more like a normal uptrend, which either continues, drifts sideways or can of course correct downwards. There may be companies where trading and trying to time the market seems worth exploring when one expects a correction. For me, however, the risk of Apple running away before I can find a new entry point is simply too high. Apple is a high-quality company and I leave these companies slumbering in my portfolio and buy them now and then when it seems favorable. In the meantime, I enjoy the dividends. Speaking of dividends, yes, the dividend yield has hardly been so far from its peak as it is now:
However, Apple spends so much money to buy back its shares that even dividend investors may benefit for decades from the reduced number of shares, as dividend payments have to be spread over fewer shares:
So why sell now, when Apple could just be laying the foundation for higher dividend payments with the share buybacks and is simply planning extremely long-term. The investors who have been holding Apple shares for years will benefit the most from this, as their initial yield will still increase, while the yield for new investors is historically low. Therefore it is pointless to change sides just because one speculates on short-term price losses.
Downside risks because of corona?
The same applies to corona anxiety. We do not know what future development will look like. Therefore, it is not very serious to make predictions. However, from my point of view, it is essential that the virus does not affect Apple's fundamental position. I am expecting more serious operational losses, but these will probably be forgotten very quickly. For example, anyone who sold their profits in the middle of last week for fear of a crash will have been extremely frustrated early this week:
For long-term investors, I, therefore, recommend simply to stick with it and not to sell. Resets can be used much more to acquire additional shares.
Conclusion - what is my concrete approach?
This article was not, as the majority of the analyses here at Seeking Alpha, aimed at investors who want to invest in Apple, but rather at investors who, like me, have found a cheap entry and are now wondering what to do.
So my approach is that I will not sell. Apple is one of the few companies that I see as an anchor in my portfolio in the current situation. Instead, I will simply be happy about setbacks, even if my book profits drop for a short time. I am happy because I can then buy new shares at a lower price than a few months before.
Apple is part of my diversified portfolio. If you enjoyed this article and wish to receive long-term investment proposals or updates on my latest research regarding my investments, my retirement portfolio or antitrust and regulatory issues, click "Follow" next to my name at the top of this article and check "Get email alerts".
This article was written by
Analyst’s Disclosure: I am/we are long AAPL. 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.