A cure for Apple anxiety
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About Nigam Arora
Nigam Arora is an engineer, nuclear physicist, author, and entrepreneur and
the founder of two Inc. 500 fastest growing companies. He is also the developer
of the ZYX Change
Method to profit from change by investing. The premise is that most money is
made by predicting change before the crowd. Arora is the chief investment
officer at The Arora Report
and the editor of four newsletters that track the ZYX Change Method. Nigam
can be reached at Nigam@TheAroraReport.com.
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Nigam's latest posts
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By Nigam Arora
I receive a large number of emails, many of which are showing
that some Apple /quotes/zigman/68270/quotes/nls/aapl AAPL
+0.28%
investors are becoming anxious.
Who can blame them? The stock market continues to go up, but Apple stock
continues to underperform. The price action in Apple yesterday was especially
negative. Relax, all is well! As I have written before, Apple stock has a history of running up into a product announcement, and then underperforming for the next 30 days. The recent price action in Apple is in keeping with its historical pattern. There is nothing extraordinary, and there is nothing to worry about, at least not yet.
Moreover, there are several reports that Apple will announce a mini iPad on October 17, and the stock may start running up in anticipation.
A quick look at Apple stock chart shows that it has pulled back many times, and then made higher highs.
Investors who are experiencing anxiety over Apple stock performance simply have made mistakes in how they have handled this investment. It is best to not get into a situation that causes anxiety in the first place.
Here are a few pointers to help from the ZYX Change Method with Apple as an example.
Position size too large
The best I can tell a majority of investors who are experiencing Apple anxiety have a position size in Apple that is too large relative to their portfolio size.
It is best to limit each position to a size in the portfolio so that no single position can cause anxiety. Such position size is known as “Full Core Position Size” in my method.
Our subscribers built a Full Core Position Size in Apple at an average price of $131. As the Apple stock price rose, we trimmed the position. Apple is still overweight in our model portfolio, but not so overweight to cause anxiety among subscribers even if it falls $200.
Realize some profits
There is a fine balance between letting profits run and realizing some profits. On one hand, unrealized profits can disappear quickly, therefore it makes sense to book profits so that they are real.
On the other hand, it is important to let the profits run especially in a stock that has performed well like Apple.
One of our bedrock principles is that nobody knows with certainty what is going to happen next. Some have affectionately dubbed this principle as “Nigam's second law.” The best way to deal with uncertainty is to always book some profits while letting the rest of the position run.
We have already booked such large profits on Apple that even if Apple stock goes to zero, the position will still be profitable.
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