by Marc Bastow | January 29, 2013 1:42 pm
What other reaction could Apple (NASDAQ:AAPL) shareholders (at least those who haven’t sold off yet) be expected to have as we’ve watched the stock drop like a rock?
If you’re still in, chances are it’s because you believe the rebound is inevitable; that the selloff is completely overdone. But that’s probably been laced by some second-guessing. If so, good — we investors don’t always do everything the way we should.
But kicking yourself alone won’t do you a lick of good; you have to learn something from the experience. In my case, how I dealt with my AAPL holdings through this blood-letting reminded me of a few good practices that I strayed from. They are:
One night when AAPL was closing in on $650, a close friend asked me at dinner whether I planned on selling. “Never,” said I, explaining that my goal was long-term — in fact, virtually in perpetuity. I felt that Apple would both continue to appreciate and grow its dividend far, far down the road.
Shame on me. I fancy myself a long-term player, but in hindsight, waiting for more and more wasn’t prudent long-term planning — it was greedy. $700 should’ve been the right place to take some profits for just about anyone who had been holding for even more than a few months. Going forward, this serves as a stark reminder that a little flexibility in your own policy goes a long way.
By the way, price need not be the only consideration. You also can look at other metrics — such as valuations — to see if any stocks look ripe for a pruning. For example, telecommunications giant Verizon (NYSE:VZ) trades for more than 140 times earnings. As the owner of shares in the company, I’m thrilled with the dividend yield of over 4%. However, duopoly rival AT&T (NYSE:T) trades at just 30 times earnings, which says to me that it’s time to at least consider the possibility that VZ might need to lose some froth — particularly in light of recent results.
I’m wondering how my favorite retirement couple in Maui is feeling today, and if they got out of their position.
You really can’t emphasize this one enough: Don’t overweight your retirement portfolio in one stock or even one asset. I know that’s hard to do — especially if you’ve been at a company for a long time, racking up shares through a stock-purchase program. But try to diversify when you can (and when it’s profitable). When the ball starts rolling downhill, things can go south in a hurry.
One way to diversify within a sector is through an ETF: The First Trust NASDAQ-100- Technology Index Fund (NASDAQ:QTEC), for instance, gives you fairly evenly distributed exposure to the 44 tech stocks in the Nasdaq-100 index, including a 2.4% weighting in Apple. The QTEC is up just more than 6% year-to-date — far better than AAPL’s 16% losses.
If you’re willing to do some more homework, options trades are a good way to limit downside risk in an individual stock, too.
Like so many out there, I found myself enthralled with the Apple hype on products — iPhones, iPads — that seemed to have no end of consumer appetite. However, rather than simply salivating at the prospect of AAPL Infinity, I should have been heeding the advice of people like Sam Collins or Jeff Reeves, who laid out a few ways shareholders could cover their butts. Plus there were plenty of other warnings on the way down.
Again, shame on me for not keeping as up-to-date as I should have. Optimism can be downright blinding — so put on some sunglasses and read what’s out there. That doesn’t mean you should change your stance based on the last article you’ve read, but the more you know, the more likely you’ll have a better grasp on when the tide is turning.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was (still) long AAPL and VZ.
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