The Value of a Company versus The Value of Your Position
All too often in the financial services industry, we are lazy. We only argue, speculate, and measure a company’s present and future value. We are searching for the next big thing, or marketing that the current “big thing” will still be the “big thing.”
We forget about the value of our own position in tandem with the value of the company. A good example is Apple (AAPL)near the end of the summer in 2012. According to Yahoo Finance on September 19, 2012, Apple peaked at $100.30 per share, and then plummeted to $55.79 per share by April 19, 2013. Today, Apple is trading at approximately $98.12 per share.
The dip was a product of the end of the Smartphone trend. Not the end of Smartphones, but the end of the trend. Many business academics verify that most business cycles last ten years. However, much of the Wall Street speculation at the time was that Apple would continue to surge forward.
Why would many of the finance gurus of Wall Street overlook such a common statistical fact? Because there is a difference between investing for the long-term and investing for the short-term, and all too often they are muddled together. If I were a day trader who had held Apple through its 2000s ascension, I would cut my losses and sell, knowing full well that Apple was mostly likely not going under. The company was merely losing the upward steam of one of it’s competitive advantages. Comparatively, if I were a long-term investor, such as Warren Buffet, I would of course hold on the stock having full faith that Apple would remain a strong technology company.
However, in the finance industry we often muddle these two types of positions together. We lean to confine stocks as being growth or value, and we forget that our positions may be growth or value. Because of this phenomenon, we tend to lean towards ‘selling and marketing’ our positions rather than analyzing them.
Since the Great Recession of 2008, the finance industry has had trouble deciding what is actually valuable. As a result, we have a slow recovering economy with a stock market that has returned to normal. Financial speculators need to take the time to drill down their positions versus the market trends. By doing so, they can create for more consistent returns (and/or dividends) for their clients as well as create a more accurate picture of the markets. After all, businesses exist to provide value to other businesses, and ultimately other people.
Lot of colleagues loaded up on AAPL around 470 due to future yield prospects. I backed up the truck beneath INTC around the same time since I liked it better. Was currently yielding 4.5% without re-investment or growth rate and at a P/E of 10.5 or thereabouts. Waiting to get called on my collars as we speak, easy peezy. That is my last position for this boom cycle.
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