Back in July I published a commentary warning about the perils of following the herd into a much loved stock. The risk is not disimilar to my previous post concerning the current love affair of investors in general with bonds.
Admittedly, those who initiated positions in AAPL or continued accumulating the stock enjoyed quite a ride……for awhile. But succumbing to such tempation always ends up the same (based on my many years of experience).
It’s all about probabilities. If absolutely everything is going well, encouraging publicity abounds and everyone you know has both the iPhone and owns the stock, then the only thing that is left to occur is something (sentiment, earnings disappoinments, hurricanes) not so good happens which suddenly cools investor enthusiasm. Selling can easily result in a round trip (as we’ve seen for AAPL since then) or worse. As I said in my (NOT) bestseller A Maverick Investor’s Guidebook, if everyone owns the stock who’s left to BUY it? A mass purging can pummel the stock.
On the flip side, I picked a down-and-out company to emphasize that the inverse is also true. If a stock is neglected, has had no good news or meaningful publicity for a very long time, then there’s nobody left to sell it. The only ‘probable’ scenario (unless the company is going bankrupt) then is something good happens to improve investor sentiment. Buyers in a stock (or an entire asset class) with no sellers can do wonderful things to the stock price.
PLEASE read the original posting Apple – starting to rot? RIM and Motorola been there! And be sure and watch the video attached to that article for a giggle.