Yoshikami: Loving Apple Stock Is a Mistake
As Apple slides towards $500 dollar a share, Apple investors are confused. "How can my beloved Apple not rise EVERY month!", some wonder. Well, it may be perplexing for some, but this has happened before.
Apple, like all stocks, is a longer term proposition from our perspective.
But that's not really the point of this article. The point is about one's perspective about stock ownership and misguided affection for one's investments.
First a disclosure that may seem a bit confusing given the headline of this article; we own Apple for our clients and believe that it is a stock with appreciation potential. We base our views on expanding emerging market presence as well as a product cycle that likely will lead to massive upgrades in computer and tablet devices.
But given our perspective on this company, we do our best to avoid falling in love with this or any stock.
I recognize Apple is a slightly different company and has built up a loyal following as Steve Jobs sought to change the world; I get that. But remember that investing in a stock tends not to be a symbolic activity for most investors but instead solely designed to make money. A stock like Apple we believe will provide investors with that opportunity. But it is a mistake to become overly infatuated with any name lest one repeats the mistakes from the dot com bubble. Falling in love with a portfolio asset can have huge negative ramifications.
Most investors make investing errors because of emotional reactions. There are reasons why outflows from equity funds are at their highest when markets are bottoming and when inflows tend to pick up when markets have risen. Buy high and sell low on the long-term ( unless you are a short interest investor) is a losing proposition. How many people lost fortunes in names that they were emotionally connected to and simply could not pull the trigger and take profit? It happens all the time.
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Our office is 30 minutes from Silicon Valley and the technology world is littered with investors who loved a given stock and lost fortunes. I remember speaking to one investor when he was talking about a position that had risen to $15 million from a $250,000 investment. In our discussions he kept referring to "she." I was confused and asked him what he meant. Astoundingly, he was referring to his stock. A piece of paper worth X amount of dollars had suddenly become a "she."
Suffice it to say, this investor was emotionally connected to this stock (or "she") and ended up not liquidating when he had the opportunity. In the end he walked away with $500,000.
"She" let him down.
I am not advocating abandoning passion or emotion when you invest; if this was just a spreadsheet game the quantitative geeks of the world would have all the answers. The reality is that the market is an emotional being and one does need to understand the sentiment of the overall market as well as your own. But making sure that there is a balance between intellectual reasoning and emotion is what key investors focus on. It's that old phrase of keeping your perspective while everyone else is panicking that is so true in investing.
So back to Apple. We like the name and believe their business prospects suggest a higher price despite recent downward pressure. With improving economies around the world, we believe Apple is poised to continue to capture a significant share of technology spending related to consumer devices. She………. whoops I mean IT ……. is a reasonable investment but one that must be monitored on an ongoing basis and profit taken as needed.
You can be assured that we will be assessing this name with both sides of our brain as we make judgments that will help us increase portfolio values. We think that's the right course of action for most investors as well. And that's the bottom line; investing is really about increasing your asset pool so that you can have the life you would like in the future. Never lose sight of that perspective.
Read More: Apple Needs China Mobile Deal or Else...
Michael Yoshikami, Ph.D., CFP, is CEO, Founder and Chairman of the DWM Investment Committee at Destination Wealth Management. Michael is a CNBC Contributor and appears regularly on the network. DWM is a San Francisco Bay Area-based independent money management firm that provides fee-based wealth management services to institutions and individuals around the world. Michael was named by Barron's as one of the Top 100 Independent Financial Advisors for 2009, 2010 and 2011.