Continuation from Friday….
TIMING & MATHEMATICAL ANALYSIS:
If we study Apple’s stock price movement since 1997 or after Steve Jobs took the reins back, it appears as if Apple’s stock price has synchronized with the overall movements of the stock market. Outside of a few notable exceptions, Apple’s stock price tends to ebb and flow with the stock market as a whole. Given Apple’s $580 Billion market cap, that makes perfect sense.
Yet, this yields an important clue. If Apple’s stock moves or oscillates with the market, it is best to take position at market bottoms, get out (and even go short) at market tops and then re-establish position at subsequent market bottoms. And while most people would assume that it would be impossible to time the market to such an extent, I have proven that not to be the case in my previous book Timed Value.
In that book I spend a considerable amount of time describing two important cycles that consistently show up in the stock market. The 17-18 year cycle that represents repeating secular bull/bear market patterns and the 5 year cycle that tends to represent one completed bull/bear cycle within the stock market.
For instance, the stock market had started its bull market in 1982 and had completed in 2000. This move was represented by a 18 year secular bull cycle. As of this writing, the market is in the process of completing its 17 year secular bear market cycle. Further, there were a number of clearly defined 5 year cycles during this time. Most notably, 1982-1987, 1994-2000, 2002-2007 and 2009-2014.
An analyst or an investor familiar with these cycles would understand that it is best to hold Apple’s stock during the bull phases, only to get out or even go short when the bear phase initiates. For example, an investor in Apple would get out at the top in 2000, go short to ride the stock from $20 a share to $2 a share, only to re-establish position at the bottom in 2003. In fact, April to June of 2003 represented a perfect entry point in Apple’s stock.
The stock was selling between $1.80-$2.70 at the time. The Dow set a clearly defined bottom in March of 2003 to continue its 5 year bull market cycle. An analyst working with Apple would know that Apple’s stock is likely to follow the overall market. Forcing an analyst to watch for any signs of a breakout. Such a breakout occurred in April-May of 2003 when Apple’s stock broke out of its 1 year trading range and surged higher. Giving us a technical confirmation that the bottom is likely in and that Apple’s stock is ready to follow the overall market higher.
The result?
Apple’s stock price appreciated 1,300% (13 bagger) between 2003 bottom and 2007 top. That was followed by a 60% collapse in its share price during the 2007-2009 financial crisis. Followed by another 700% gain in the subsequent 2009-2014 bull market.
GETTING IN AND OUT OF THE STOCK
As you very well know, taking a trading/investment position in a Tenbagger at the appropriate time is only half the battle. Staying put, increasing your position and not being forced out to sell at the wrong time is the other side of the coin. After all, it wouldn’t be a good idea to take a 100% profit, only to see your stock go up another 20,000% over the next decade. As human beings we are wired to buy and sell at exactly the wrong time. Hence the inability to outperform the market. When it comes to Tenbaggers we must have a clearly defined set of trading rules that will help us mitigate the risk of being wrong (Please see the Tenbagger Trading Rules & Maximizing Returns chapter).
To be continued tomorrow…..
How You Could Have Made A Fortune Trading Apple, Inc (AAPL) Google