Friday, July 1, 2011

Pride and Prejudice: An Apple Story

Pride can cost you money in the stock market.
Most of us have probably held on to a clunker stock for too long because we liked it when we bought it, and didn't want to admit we were wrong.
My pride has lost me money another way. It's kept me from buying stocks that I had at some point, for some reason, written off.
Back in November 2008, I had Apple (AAPL) on my short watch list of top stocks I was considering.
It was a perfect storm for Apple, depressing its stock to ridiculously low prices. The market was still tumbling from the crash earlier that fall. Apple's longtime leader, the visionary Steve Jobs, was sick. Rumors were abundant that he was on his deathbed.
I watched the stock drop from near $190 that summer to $150. Then to $130. Then to under $100.
It kept on falling. 

I turned to a colleague one day and vowed that when Apple hit $75, I was backing up the truck.
Every day, I watched that price edge closer and closer to my mark.
About a week before Thanksgiving, it dipped to $79. 

I grinned, sure I was going to meet my buy price that week.
But I didn't.
The stock started to edge upward. Bullheaded, I refused to reconsider my buy price. And I watched Apple move past $90. Then up over the $100 mark. Then to $120.
I realized it was a mistake not to have picked up some Apple at $85 or $90 once it had gained some momentum.
But I didn't want to admit it. I didn't even want to acknowledge it to myself.

I may have been too greedy then. But now I was too proud.
As Apple floated upward, I took a defensive posture. I convinced myself it would come crashing down to earth.
I said its products were overpriced (which I still believe), and surely consumers would look for better value in tech in this struggling economy. 
I even so much as rooted for the Android platform to knock Apple off, even though I had no position in Google.
For no good reason other than my own pride, I had become anti-Apple. 

Big gains, but not for me
I kept that proud position on Apple for more than two years as the stock surged past $300. Then, something made me decide to step back and give it another look.
It was an eye opener.
At $340, a full 400 percent gain from where I’d written it off, Apple looked cheap to me.

It had a price-to-earnings ratio around 16, and it had consistent growth that should have priced it much higher. Not to mention, it generates tons of cash.

OK, so maybe Apple's not evil
Once I shed my coat of pride, I began to acknowledge how impressed I was by Apple's loyal legion of users. They are a messianic lot, always looking to promote the Apple brand, and always recommending its products to friends and colleagues.
And I had to admit that Apple's products being expensive is actually a good thing for investors. It means that users are willing to pay a premium for them, feeling they are that much better, or hipper, to command a higher price.

Learning from my mistake
I bought around $340, and I've twice added to my holdings at $335 and $319, making Apple just under 10 percent of my portfolio.I like Apple going forward. But I don't want to forget my lessons from the past.
Admitting my mistake and reconsidering Apple as its price rose would have delivered me a bushel of sweet gains.
Letting pride get in my way was a sure way to be left with the worm.

Have you ever refused to buy a stock because your pride got in the way?

My portfolio up .12% on the year. See it here.

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