January 4th, 2008 - I wake up to an e-mail that read as follows:
"what did you buy at the end of the day?
oh, that's right...you were working out.
I bought apple right at the close....watch me make some mad money!!!!!!!!!!!!!"
Now it should be noted that I didn't buy anything at the end of that day, because a) I was focused on improving my already enormously chiseled physique and b) I didn't have the money or the information to buy anything. Regardless, Bellz had solid reasoning in purchasing AAPL. AAPL closed at 180.05 (I think Bellz got them at closer to $178) which was a 7.63% drop for the day. Furthermore, their wasn't any strong reason for the hit and moreover, they're a proven winner (they've experienced a 235% increase over the past three years!) that was selling at what seemed to be a discount.
Either way, I felt like AAPL was overpriced and would drop for a number of reasons (to be fair I wasn't very confident at the time, but I did undoubtedly call it a "dumb trade"). Most notably, we were facing a potential recession which obviously induces an overall decline in consumer spending - of which AAPL relies heavily on. Furthermore, MacWorld was rapidly approaching and consumer were all afraid they might miss the unveiling of the next iPhone. When their fears turned out to be unwarranted, the stock was quickly unloaded. And there are certainly more contributors, but I don't know or don't care to comment on them - primarily the former.
Either way, they closed the day $139.07 - a 21.87% decrease compared to the Nasdaq's 11% decrease over that time. So, there's definitely a substantial amount of ground to be made up...
Needless to say, it's easy to criticize Bellz for this debacle, but I think it a bit foolish to question his knowledge based solely upon those results (even though I've been laughing my ass off...). The point I'm trying to get at is that even the most seasoned and knowledgeable experts struggle mightily to predict the market. The "great" Jim Cramer is a man admired by thousands (millions?) of Americans and widely respected as one of the most cunning financial minds in the industry. Yet, not only has he missed on some of his predictions (we all make mistakes) but he's missed both significantly and repeatedly. The following link exhibits this very fact and also serves as a somewhat interesting measure. Anyways, the point is this: experts are certainly experts for a reason, but to all you novice investors (myself included), it is absolutely critical you make decisions for yourself. Even the advice from the most credentialed investors must be taken with a grain of salt.
Jim Cramer's Market Prediction Accuracy
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in 2006 Cramer's suggested portfolio lost money "despite nearly every major equity market on earth being up between about 15 percent and 30 percent. what a douche. Thats from henry bloget
ReplyDeleteThe article you're referring to is here. Which is actually an interesting read that nicely compliments my post. The truth of the matter is this: beating the market without taking on substantial amounts of extra risk is very difficult. Therefore, to the novice investor - stock indices are probably the smartest investment you can make - but then again, that isn't any fun...
ReplyDeleteHere you go Miles....why did I buy Apple (at $179 on 1/4/08)? Apple hit a high of $202.96 on Dec. 27th, and a broad market sell-off knocked Apple down to about $180. A 10% discount for a great company with great products...what could be better? I didn't think there could be much better, so I pulled the trigger. My thesis for buying was: AAPL got knocked down unfairly and they would continue to dominate their markets for quarters to come. I thought I was getting a discounted price. Where did I go wrong? First, I shouldn't have bought the stock so close to its earnings report (only two weeks away). The stock had such a nice run up after their last earnings report, it would take something so great (at MacWorld and in their guidance) to sustain this unbelievable run. And this was what exactly didn't happen. Expectations were so high at MacWorld (because of last year's unveiling of the iPhone) almost anything Steve Jobs presented would disappoint. That's just what happened. If you look at the daily chart the day MacWorld took place, the stock fell off a cliff. Here is an article that talks about the new MacBook Air and why it disappointed investors.
ReplyDeleteIf investors knew no product could match last year's iPhone, why did the stock get priced up to $200+? It shouldn't have...at $200, Apple stock was over-priced relative to where it was the previous quarter. What if Apple rolled out a new product at MacWorld that would generate millions of new dollars in revenues? That was always a possibility, but still unlikely. My mistake: I got caught up in the hype and didn’t do enough of my own research. Now I’m stuck with AAPL stock at $130 (28% decline from when I purchased it 3 weeks ago). It would be silly to sell now, especially after all the “smart money” already dumped the stock. If I were looking long term, this would be a great time to buy the stock because it is relatively cheap to its past valuations. With expectations so low now because everyone has written them off for giving disappointing guidance, AAPL will more than likely beat their guidance (as they always do), but in the end, it is just a matter of pleasing the “smart money” – the ones who actually determine the price of stocks. I was looking at Apple with a narrow view (only what had happened to the stock the previous few days) and I should have been looking more long-term.
In the end, it is surprises that move stocks up and down. In recent quarters, Apple has been beating estimates by less and less each quarter, so it looks like the explosive movement (in terms of stock prices) is coming to an end. Apple now has a fair valuation and if you are a long term investor, this is a good entry point.