First things first: I am no expert on Apple (AAPL) the company, nor am I an expert on AAPL shares.
I do, however, have a pretty good grasp on human behavior when it comes to buying and selling stocks — and it is in this realm that I think Apple can teach us a lot of great lessons about investing.
The way I see it, there are three basic approaches to Apple.
First, there are the loyal users. These are the people who love the company’s products and buy just about every new model iPhone, iPad, Mac and so on as soon as it’s released. This camp usually likes to argue fervently — and with anyone who will engage them — that Apple is the greatest company that’s ever existed. This camp is also nearly always bullish on the stock, regardless of price action.
And indeed, owning AAPL has been a one of the best decisions any investor could make over the past decade or so. Not including the recent dividend paid, Apple shares are up over 5000% since June 2003. Given that amazing track record, it’s hard to argue too much with the lovers.
The second approach to Apple is what I call the haters. These are the people who never liked Apple products, considering them too simplistic and too much of a fad. These are the people who still own Research In Motion’s (BBRY) Blackberry, or who have opted for the newest Google (GOOG) Android OS phone made by Samsung (SSNLF). Heck, this group hates Apple so much they might even be tempted to choose a Microsoft (MSFT) Windows phone.
The haters of Apple also largely hate the stock, and since the September 2012 peak of just over $700, the haters have been grinning mightily. As I’m sure you know, AAPL has tumbled big-time from its all-time high, plummeting about 43% in just over nine months. What makes this plunge even more pernicious for investors is that during the same time period, the S&P 500 has logged a gain of more than 7%.
This woeful underperformance in AAPL shares has many causes, including the much-publicized lack of any new, game-changing products in the pipeline. Apple also seems to have lost its “cool factor,” while we can’t overlook the absence of Steve Jobs — a rare genius whose sense of purpose, will, vision and love for the game simply cannot be replaced.
That brings us to third Apple approach: the rational one (a camp I, of course, like to think I’m in).
This group saw the rise in AAPL, and the tremendous innovation and mass adoption of the company’s products — particularly the iPhone — as a game-changing wealth multiplier that was driven by revenue and profits. Unlike many fad technology stocks in the late-1990s, Apple actually had huge revenues and record corporate profits that consistently bested even the most optimistic Wall Street forecasts. This concrete performance has made it one of the most profitable companies in corporate history.
The rational camp rightly wanted to own this stock, and that’s why it’s made so many investors so much money, particularly since the carnage hit most stocks in 2008 and 2009. Indeed, if you were smart enough — or perhaps rational enough — to have bought AAPL in late-2008, you would be sitting on a gain of about 387%, and that includes that 40%-plus drop since September 2012.
Of course, the rational approach would likely also have caused you to trim down your Apple holdings once it was clear the stock had reached a short-term top. Given all of the aforementioned recent struggles in the stock, it would only make sense to sell winning positions as the shares broke below key technical and psychological levels at $650, $600 and $500.
Now we see AAPL shares hovering around $400 — a level that many feel could be an inflection point in the stock.
So, if you’re a lover of Apple, you say the stock is a buy here. If you’re a hater, you likely think shares are still overvalued, and perhaps headed down to $350 or $300 or even lower.
For the rational camp, I suspect that AAPL at $400 is a level where the stock is looking very attractive — particularly if you’re a long-term investor who is not too concerned with buying and selling the stock for a quick profit.
I think it’s wise here to remember that Apple is a profit machine and cash machine that’s incredibly strong fiscally. There’s also no doubt that the company is going to continue being very profitable for many years to come. Until this fundamental reality is altered by the choices consumers make, a rational investor still should consider AAPL for their portfolio.
At the time of this writing, Jim Woods held no positions in any of the stocks mentioned here.