Admit it. You saw the title of this post and thought what the #@&! is this guy thinking! Is he insane? Who goes and sells one of the world’s most profitable and admired companies?
The truth is that this was not an easy post to write. Having watched the price of Apple stock (AAPL) rise above $600 (about $50 more than what I sold it for) left me wondering the same thing about my decision.
But isn’t that the problem when we invest? We let our imaginations run the show. If we sell, we’ll kick ourselves if stock goes up, but we’ll pat ourselves on the back when it goes down.
What Was Wrong With Apple?
Nothing! The company is doing outstanding. They’re on fire! They’ve been breaking records, beating analysts’ earnings predictions, and exceeding their own reputation. Apple even finally agreed to start paying a dividend – something I was holding out for but began to doubt if it would ever happen or not.
The analysts are also very optimistic. According to CNN Money: The 44 analysts offering 12-month price forecasts for Apple Inc have a median target of 635.00, with a high estimate of 750.00 and a low estimate of 500.00. The median estimate represents a +4.79% increase from the last price of 605.96.
It doesn’t stop there. In one, it was predicted that the stock would have to rise to a price of $1,368 in order for the share buyback to “worth-while” for Apple.
Believe me: If the price ever goes back down, I’d consider buying up some shares again (after re-evaluating its recent financial health of course).
Removing Your Emotions From Opportunity:
Selling a stock can be a confusing time for your emotions. At no other time in your life do hold onto to something that is performing really well, making you lots of money, making you really happy, and you say to yourself “time to get rid of this thing”.
But that is exactly how it works. There’s a reason we’re told “Buy low, sell high”. There’s a reason why Warren Buffett proclaims “Be fearful when others are greedy, and be greedy when others are fearful.” It’s a logical way to lock into your earnings.
You see, I could have held onto the stock and we could have speculated on the price forever. Maybe it will rise to $750. Maybe it will fall to $200. What if, what if, what if? The truth is that despite our best guesses – no one really knows what will happen tomorrow.
But a capital gain is real. When you buy at a lower price and sell at a higher one, that’s when you capture the profit.
The Signs It Was Time:
Here were the reasons why I decided it was time to sell:
1. Apple met (and exceeded) my sell-point.
When I bought Apple last summer at $333, I had heard a media report that said that Apple may reach $500 within 12 months. I laughed to myself and sarcastically said “Okay, if it hits $500, I’ll sell.” After all, $500 would buy me a new iPad, right?
Regardless of how you come up with a sell-point, it’s important to have one. Anyone would be happy with a 50% return, right? If your mutual funds did that, you’d be telling everyone you know how excited you were.
The hard part is actually following through. After the stock went above $500, before I could log in to my account to sell it, it had climbed to $510, and then $530, and so on. That’s when greed set in. I kept asking myself “How high can this go up and how long will it last?”
Don’t do that. That’s called timing the market, and no one (of any worth) advocates that strategy. What the financial greats do advocate is opportunity. When your stock hits your sell-point, lock into those earnings!
2. The price was rising too rapidly.
Apple crossed $400 right around December 2011. About 3 months later it crossed $500. In 2012, it soared over 30% before the time I sold it.
When a stock trades at its 52 week high each day and continues to increase that rapidly, something is going on. Maybe it’s the company or maybe it’s just the market. Maybe it’s just hype! Regardless, it would be naïve of me to think that this lucky streak could continue to rise at this rate or stay this high forever. Again, you take the opportunity where you see it.
3. Attack of the Androids?
One of the main qualitative reasons I first picked Apple was because it was a company ran by Steve Jobs, one of the greatest leaders of modern times. At the time, the iPad 2 was relatively new and there was talk about an iPhone 5. The last rumored project Steve Jobs had worked on was the iPad.
Although the Apple products are cool, I do feel as though the iPhone and iPad have a tremendous amount of competition and copy-cats coming after them. For example, around Christmas 2011, the Amazon Kindle priced at $200 was perceived as a serious threat to the $500 iPad. Now the market is being littered with dozens of other low cost alternatives. Android phones also continue to eat up a serious market share that once wholly monopolized by the iPhone.
Although there is no denying that there is still a bright future for Apple, time will tell if the post-Steve Jobs Apple will be able to keep up with the expectations it has come to deliver. Although I was glad to hear about Apple’s recent announcement to pay their shareholders a dividend, I question if this is a sign of decisions that will redefine the Apple of the past decade.
The Bottom Line:
We cannot time the markets or predict what our investments will and won’t do. Although it was tough, I felt satisfied to cash in on a 64% return in 8 months from Apple. Although the strategy of being logical is nothing new, it takes practice to perfect its execution. I will look at this as a learning experience and hope I can apply it to other fortunate opportunities to come.
Readers: What do you think about selling your stocks? Do you let emotion over-take your decisions, or do you stick to logic and reason. Do you still think Apple is a good buy, or is it all just hype? Please feel free to share!
Photo Credit: CNN Money