My Warning on Apple

by Timothy Lutts

This was published on April 19, 2012, titled “What I Really Think About Investing in Apple”. Back then, the stock was trading around 590, on its way, as we all know now, to 700. But by October it was back down to 590 and heading much lower, validating my argument perfectly.

apple“The one quantifiable negative I can see is that AAPL is owned by more than 1,000 mutual funds. Also in the same category is the fact that Apple is the most richly valued company in the world, that the stock is the largest component of the major stock indexes and that it’s the largest holding of numerous institutional investors.

And what’s wrong with that?

Well, these institutions own Apple because doing so helps them match the performance of the indexes, because not owning AAPL would bring critical questions from their shareholders/trustees, and because it’s a very liquid investment.

But eventually the stock’s popularity will backfire. Eventually, a time will come when all possible owners own AAPL, when there are no potential buyers left … and that’s when the sellers will take control.

I saw it happen with IBM. I saw it happen with Microsoft, and I have no doubt that I will see it happen with AAPL. I simply don’t know when.

But I’m fairly confident that the stock’s long, profitable uptrend is closer to its end than its beginning.

But what if the stock keeps going up and you don’t own it? Does that make you (and me) wrong?

No, not any more than more than the fact you don’t own CREE, which was up 43.5% in the first quarter, means you were wrong about that.

The point is, you don’t need to own AAPL to be a successful investor. In fact, as a growth investor, I think there are better risk/reward relationships to be found among numerous less popular stocks … and I’ll recommend them as they come along.”

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