How To Play Apple Earnings: Intelligent Investor
Q: As I made very public here, I liquidated 4100 shares of Apple in October for tax purposes last year, but had every intention of buying them all back which I also did publicly here in Late November, December and January for a new addition of 4000 shares of Apple at a DCA price just over 86 bucks. I also went Heavily into GLW, WFC, CSCO at very deep discounts. They have all done far better than I imagined and I am no guru but just stayed with the simple principle of buying and DCAing into great companies that have been sold on irrational fears even while maintaining best of class balance sheets and growth potential. So now we have earnings season and there are those here that are hoping you will be panicked into selling or others that say bet the farm as it is going to the moon. The better strategy may be this and I try to address each class of investor here. Gamblers do not count, so Risky and John Anthony should stick with their flip the coin and pray Apple falls strategy that has got them nowhere for the last 6 months. For the others here I suggest maybe trying the following. Again with money you do need for at least 12-18 months and with common shares only, not Options. If you already have a sizable position in Apple: Keep extra cash on hand and do not commit prior to earnings. If Apple falls you get to add more at a discount, if it goes up and you can feel good adding more on a stock that has a LOT of room to run in the future. If you have no position in Apple, take your cash and split it up. Commit Half Pre-Earnings and the other half Post-Earnings to DCA into the position. For those that have a small position but want to grow it, I would say follow the same advice of the no position person. Commit some (maybe a third or half) before and then some (2/3 or half after) after. Then sit back and enjoy the fact that you DCAed into a great holding with major events on the horizon post earnings. As for JA and Risky and their alias names, well they will not go away and will stay here to post FUD for awhile. Why? Simple. They have no money and really a sad life. They lost a lot of money betting against Apple based on emotion and no actual fundamental basis and now are bitter and feel a little better about themselves anytime Apple has a little pullback as if maybe, just maybe they had a hand in creating it. They continue to swim against the current and they continue to wonder why they never get ahead, but each of us has a different learning curve. Theirs appears much steeper than average, but it is okay. They will learn or drown. keep learning investors, and remember to always write down the reason you own a stock. If you cannot on paper make a good case for holding the stock at its price, then it is not the right stock for you. It means you will not know why or when to sell. Only those with clear understanding of what and why they hold a position can take the correct actions as the stock goes up or down. Everything else is luck.
A: Thanks JB for continuing you honest blog on your investing. I'm simply long on Apple since 1984, don't have your investor savvy, but go for what I know. Fortunately, both approaches work. Though I rarely comment on this board, I do consistently follow the remarks of the few posters here who stick to sensible analysis and observation. You, JB, are definitely in that group, and I very much appreciate your thoughts. I've learned a lot from reading what you've written here. Thank you. A conservative (buying stock directly is risky because AAPL has had several HUGE downswings in the last year, the the economy is not getting any better) approach to take a bullish position on AAPL is to sell long-term puts. You can sell Jan 2011 puts at a striking price of 80, and receive a premium of $10/share. So if the stock is below 80 by 2011, you have a net entry of $70/ share. If the stock shoots up in the short-term, you can buy the put back for a considerable profit. With this strategy, AAPL could drop to 70, and you would still be breaking even. To protect your downside, you could buy Jan 2011 50 puts for around $3/ share, putting your net entry into the stock (if it's put to you) at $73/share. By buying a protective 50 put (instead of selling the 80 put naked), you save a lot of BP, which could be used for other plays. "They lost a lot of money betting against Apple based on emotion and no actual fundamental basis and now are bitter and feel a little better about themselves anytime Apple has a little pullback as if maybe, just maybe they had a hand in creating it." Dude, with comments like those, you're asking for them to post more often. If you want to have an intelligent discussion about AAPL bull and bear strategies, let's leave the personal stuff out. When you own stock, you don't really have an investment (since you don't have access to any of the assets or profits). Buying stock is a risky bet. The vast majority of buy/holders have broken even at best in the last decade (since the U.S. economy matured). When you start insulting people over stock, you're showing signs of falling in love. Since the stock gives you right to zero assets, love your house, wife, children instead of your stock. Knowing when to sell is more important (and requires more skill) than knowing when to buy.
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