Separation anxiety

Big news: The FitsandStarts interns have put another AMA on the schedule! So get your questions in now via email (lou (dot) whiteman (at) live (dot) com) or, if it still exists, on Twitter. Nothing is out of bounds, especially since I can just ignore the questions I don’t like.

Apple is a really good company.

I’m going to assume that is a pretty non-controversial stance. I think that while many who read this might have nits to pick about Apple, most would concede it is exceptionally well run, has generated above-average returns for long-term investors, and is unlikely to fall off a cliff any time soon.

The tougher question, perhaps, is this: Is Apple a substantially better company today than it was on 31 December 2022?

I won’t pretend to be an Apple expert. I know they have announced a lot of augmented reality stuff and have a pipeline of products. But I think the standard answer to that question would be, no, Apple is not a substantially better company today than it was just six months ago.

But don’t tell that to the market. Apple shares are up 44.9% year to date as of the moment I type this. The company has gained nearly one trillion in market capitalization in the last six months.

One trillion dollars. In six months.

That’s really hard for my little brain to process.

To me, there are three potential explanations:

1. The market was dead wrong on January 1, 2023, when it comes to Apple.

2. The market is dead wrong today when it comes to Apple.

3. Both! ¯\_ (ツ)_/¯

The correct answer, I believe, is choice number 3. And it gets to a simple, yet often overlooked in the frenzy of the moment, truth about investing: Any one day’s stock price, and any short-term stock price movement, tends to say very little about the prospects of the company behind it.

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This concept is hardly a secret. There are millions of cliches and sayings referencing it. One of the best is Warren Buffett’s 1987 quote: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

But it is still an uncommon thought on CNBC, where the latest price movement is always the focus and things are so in-the-moment certain parts of the trading day are declared THE MOST IMPORTANT.

Spoiler: If any one hour of trading is that important to your net worth, you are doing it wrong.

It is easy to sit here and say we need to measure our progress in terms of years, and not quarters or minutes. And I very much believe that is the case. But if you have made a disastrous investment and you need years to figure that out, that’s a problem. There’s no way to completely tune the market out; nor should you try.

But I picked Apple here for a reason. It is hard to think of a less-controversial tech stock. (I could have easily picked a certain electric vehicle stock that had an even better first half, but that stock just invites “yeah but…” from every direction.)

If Apple can move this dramatically in a short amount of time, and for little to no discernable reason, any stock can have a crazy short-term move in either direction. The best we can do is realize this is the case, steel ourselves for if and when it happens, and perhaps self-audit the reason we bought in in the first place.

In short, we need to separate the stock from the business.

Back to Apple. Was the market right in January, or is it right now? Really, who knows?

Here’s what I think is going on: Apple is now considered by investors the way utilities once were. It is a so-called flight to safety stock. If all goes wrong and times get scary, this is now one of those stocks you can put in your portfolio to sleep well at night. After all, they have more cash than European treasuries and people are not just going to start going without their iPhones.

So, people rushed into Apple during the panic stages. As the market freaked out about interest rates, Apple appears a safe harbor (and one in no need of borrowing for the next century or so.)

As euphoria began to build it was around AI and tech. I fear for smaller companies caught up in the AI wave. But Apple’s halo extends there too. So, the stock was in favor both when nothing was in favor, and when a small slice of the market found favor.

The rally seems to be broadening as the summer goes on. If so, it is possible some of that Apple money will soon flow elsewhere into other stocks. Then again, it is also possible that the rally fades, people panic, and the flight into Apple intensifies.

In conclusion, Apple shares could go up, and they could go down, from here. They could also do both, sometimes even on the same day!

And through it all, Apple will remain a bedrock tech company with huge competitive advantages, a substantial cash pile, and at least some potential for growth from here.

Don’t forget to separate that part out when you are staring at the price chart.

Disclaimer: Fits and Starts DOES NOT provide financial advice. All content is for informational purposes only. Stocks mentioned are as reference only, and a mention should not be interpreted as a buy or sell recommendation. The author is not a registered advisor or a broker/dealer. DO YOUR OWN HOMEWORK. The information contained within is not and should not be construed as investment advice, and does not purport to be. The red zone has always been for loading and unloading of passengers. There’s never stopping in a white zone.

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