People are always asking me if I think certain stocks are a good investment. There is a flaw in the question, but we’ll get to that in a minute. Right now, let’s get right to the real question people are always asking me these days.
Is Apple Stock a good investment?
What people mean when they ask me that is not whether or not Apple is a good investment, but whether or not I think Apple stock will go up a lot … soon … really soon. They also want to know whether or not I think Apple stock will go down, but that is not why they ask the question. They want to buy Apple stock because it sounds like a smart investment, or because it feels like a smart investment.
Of course, none of this has anything to do with an in-depth analysis of the company’s stock and it’s prospects for future growth and earnings. It’s all about buzz. They heard about the iPhone and it’s a big hit! They heard about the iPad and it’s a big hit! They heard about the NEW iPhone, and it’s a big hit! Now, they hear that Apple’s earnings are higher than Microsoft’s earnings and a new iPhone is coming to Verizon, and…
Can I PLEASE buy Apple Stock and become a multi-millionaire?
Is Apple A Buy?
Whether or not Apple stock is a good investment FOR YOU has a lot more to do with you than it does with Apple.
Where is this money to buy AAPL coming from?
What are you planning on using this money for?
When are you planning on needing the money?
What is the purpose of investing in Apple stock in your own portfolio?
— I get a lot of blank stares.
I know you want to go buy some shares of Apple right away before "it’s too late," so I’ll get right to the point.
First, investing in stocks is usually a bad idea for money that you need or plan on using sometime in the near future. Even Apple stock goes down. Sometimes it goes down because of the company, and sometimes it goes down for reasons completely unrelated to Apple and its iPhones and iPads.
- Do you remember all of the times in the last year where the company reported that iPhone sales or iPad sales or iPod sales were down?
- Do you remember all of the times during the last year when analysts were negative on Apple’s financials and worried about the strength of their sales?
- Do you remember all of those times in the past year when the press and media were running those negative stories about Apple and all of those negative reports about iPads, iPhones, and iPods?
If you pay a lot of attention and have a really good memory, you might recall the whole Antenna Gate thing where there were ongoing reports of problems with the iPhone losing signal strength when people held it with their hands.
If you can remember anything else, you might be confusing another company, because other than the problem with the iPhone antenna there has been nothing but good news about Apple from the company, from technology analysts, and from the news media.
At an investor level, there hasn’t been a single downgrade of Apple since November 2009, and that was from Strong Buy to Buy. Not exactly a damning indictment.
In other words, there has been nothing but good new from Apple for the past year.
In the short-term, there is no way of knowing how the market will react to any bad news from Apple if there is any. It is also important to see that Apple doing great things is not new news. There are already a lot of investors in the stock expecting great things, not from the iPad, or the iPhone 4, those great results are already very much reflected in the price of the stock. The investors in Apple today are putting their money on great things happening with the iPad 2 and the iPhone 5. If you believe that too, then Apple is a good investment for you over a 2-year or longer period.
If you are looking at anything shorter than that, consider this 52-week chart of Apple’s stock price. Notice that there are plenty of times where buying Apple stock would have been a loss if you had to sell too soon. There’s a three month period beginning with the peak in June where your investment would have been nothing more than a capital loss deduction. If you bought in May it would have been five months before you made more than pennies on your investment. Even Apple stock is a tricky buy for the short-term.
Before you buy, fire up any one of the free stock charts online and take a look at how the stock price moves over weeks, months, and years so there are no surprises.
In other words, if you have money in a brokerage account sitting in cash, or if you have some other stocks you aren’t feeling as strong about, you could do a lot worse than AAPL. But, if you’re taking the $1,000 cushion out of your savings account to grab a handful of shares, don’t bother.
Remember if you invested $1,000 in Apple — or any other stock — and it went up 25 percent, you would make a whopping $250. That’s a good start for money that you have no plans for other than investing. It’s not worth the risk if you need that money to pay for Spring tuition this January.
Finally, before you get too excited about the guaranteed profit from owning Apple stock that you might be imagining, ask yourself one very hard question. Although it isn’t nice to think about, nice isn’t how investors profit. Steve Jobs is getting older and has had some major health issues. Deliberately or not, he has been positioned as more than just the CEO of Apple. If he were to die or need to step down from his position at Apple, what do you expect to happen to the stock price?
It’s a real risk, and one that should be considered by any serious investor.