My colleagues cringe every time I update them on the price of an individual stock (no, not Apple) that I bought last year. Why? Is it because they don’t like the company? No, I’m quite confident most of my colleagues like their product. Are they jealous that it’s performed well? Haters gonna hate. Is it because they think I’m taking a dangerous risk? That can’t be it – they all know it’s a tiny portion of my overall investment portfolio. So what then?
They are giving me grief because the whole idea of selectively buying individual stocks, no matter how attractive it looks in the moment, is one of the most unlikely ways to beat the market, and they’ve heard me say this over a hundred times. So what was my motivation? I wanted to fully experience the emotions that behavioral finance experts love to write about. And I like a good thrill as much as the next guy, so I figured it was time to understand the mindset of someone who tries to combine his thrill seeking habits with investing.
With this experiment, I promised myself I would follow the same rule I ask my clients to follow with individual stock investing: The total value of individual stocks that I will own at any moment will not exceed more than 5% of my investment portfolio. The other 95% will be in low cost professionally managed mutual funds and perhaps some private real estate. If I get lucky enough with one of my personal stock gambles, I will have a pre-determined target price for selling it. So now I wonder – what’s it going to take to get Apple stockholders to follow a similar discipline?
In the spirit of full disclosure, I own an iPad, iPhone, and a MacBook. I’m a happy customer and a huge fan of Apple’s innovative thinking. No one is saying that Apple will be the next Blockbuster, Kodak, or Tower Records. To be candid, I hope their track record continues because that means more awesome products for me to enjoy. But trends are changing faster than ever before, so diversification is arguably more important now than it was a decade or two ago. It’s very possible that Apple could become the next Microsoft – succeeding, but not thriving.
Apple’s stock price surpassed $700 in September 2012 and is NOW below $460 as I write this on January 28th, 2013, a 34% drop. Yet, not once have I heard a single person or journalist use the word “rebalance” when talking about what to do now. I’ve heard “Do you still like the company?” and “Is there another company that looks better?” and “Should I finally sell it?” Uggh! Better questions: Why am I investing? What return do I need to have a comfortable life when I can no longer work? If I was a financial advisor, what advice would I give myself? Hopefully, the recent drop will motivate owners of Apple stock to think differently about their investment strategy. Or should I say, “think different.”
The opinions expressed are those of the author and are subject to change without notice in reaction to shifting market conditions. This blog is provided for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.