Apple’s meteoric stock-price rise defied sound investment rules. But, eventually, reality set in.
Investors who jumped into Apple’s shares because they like the company and because it was going up are getting a hard lesson. Shares of the do-no-wrong stock are down a bruising 37% from their high, dealing investors a loss that requires a 59% gain just to break even.
Lessons are abundant. Savvy investors know that following the crowd is usually a bad move. Apple became a darling stock with both individual investors and professionals. Yet just because a company is hot with the masses doesn’t mean the stock will be a winner. Studies have shown, in fact, that popular companies often see their shares get overvalued and perform poorly in the future as a result.
The crash in Apple highlighted, again, the danger of overloading a portfolio with too much of a single stock. Investors who let Apple get large in their portfolios are paying dearly now.
Corporate history has shown that when a company loses its successful founders, it and the stock often run into trouble. Apple investors wanted to discount the role of the late Steve Jobs, but his influence is clearly missed now.
Above all, investors know that the pressures of capitalism make it difficult for a company to preserve oversized profit margins. When a company is charging consumers a premium, rivals quickly figure out how to make a similar or better product at a lower price. Fat profit margins can make great stocks in the short term, but when those margins are under attack, so, too, will be the stock price.
USA Today
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