The Investment Scientist

You Sold My Apple? What a Shame!

Posted on: December 4, 2013

ImageThat was a message I got from a new client of mine. I must admit, it really bites. Yes, I sold his Apple stock. And yes, since then the price has gone up 15%. So of course, I can understand he’s upset and beginning to question whether I know what I am doing.

Having studied improvisational comedy, I’m aware that regardless of how I feel, it is wise to always validate others’ feelings. So I replied, “Yes, I should have asked you before I sold it.”

Afterward, I sent him some data to mull over.

Nasdaq just crawled its way back to 4000 a few days ago, and this time Apple is the biggest and hottest stock in the Nasdaq 100.

Last time when Nasdaq passed 4000, the top ten tech stocks (try saying that ten times fast) were, Microsoft, Cisco, Intel, Qualcom, Oracle, JDSU, Nextel, Sun Micro, Veritas and MCI Worldcom.

Since the last time Nasdaq passed 4000, Microsoft has gone down 34%, Cisco 59%, Intel 53%, Qualcomm, the only up stock in the group, has gone up 25%, Oracal has gone down 67%, JDSU 98% and the remaining four are no longer in business; they were either merged out of existence or end ignominiously.

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Comparatively, if you had simply bought and held the S&P 500 then you would have been up 28%. If you had been using me as an advisor at the time, I would have surely put you into a Small Cap Value fund like DFSVX, which has gone up 97%.

Based on these historical precedents, do you have confidence that Apple will remain the top stock in the next ten to twenty years, which is my client’s retirement horizon? I sure as shootin’ don’t! While I could be wrong about Apple, I don’t believe betting one’s retirement on the hottest tech stock of the moment is a prudent move.

Herein lies the challenge of being a financial advisor with too much of an academic background. Most investors (and that includes many of my clients) are trained to engage in prediction-based investing. If you watch CNBC, it’s basically 24/7 predictions of what the market will do.

I, on the other hand, engage in evidence-based investing. Every decision I make is based on solid evidence, just as the decision to sell Apple stock was. Most of my clients who have been with me for a few years understand that, though often not my new clients. They must first unlearn all the junk Wall Street has put into their heads.

It is my job however, to help them unlearn it as quickly as possible. If they don’t like what I do, regardless of how correct I am, it is still my fault.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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