Is Apple Crashing?

It's always a good idea to look at stock performance from as many perspectives as possible, particularly the ones you own.

I’ve been bearish on Apple (AAPL) for a long time, yet it does not give me any pleasure to see it suddenly tank.

Highly-valued tech stocks do not obey old fashioned stock market laws. This is nothing new.

Technology stocks--those in the 19^th century, the 1920's, the 1950's, or more recently--have always been a law unto themselves. They have always provided big challenges for investors. Many of these investors have sadly been burnt, and burnt badly.

So what should investors be thinking about Apple?

The stock has tanked. The two divergent points of view are number one, don’t fight the tape and number two, don’t get shaken out of your position.

Which one is right?

Only time will tell. However, the past can throw some light on things.

I like to keep things simple so here's Apple’s share price quarter by quarter.

I almost want to leave it at that. If you recognised the pattern, and you love it, then you must be a trader. To investors, it looks like time to leave.

Yet of course anther leg up is what the Apple believers think comes next, this time to $1,000 and the magical trillion dollar handle.

 What bears see is this happening next:

If you are investing properly and hold you don’t need to worry, because with a balanced portfolio of shares you could ride Apple falling from the tree all the way to $1 a share and it still wouldn’t have a noticeable impact on your portfolio.

Unfortunately, that's not how a good amount of people invest. Instead, many people put all their eggs in one basket, treating the market like a casino.

Right or wrong, what Apple believers say today is the same song that got sung in 1999. And this is what happened next :

This is what Appleholders must defend themselves against.

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So what to do if you hold Apple?

1. If you firmly believe there is a lot more to come from Apple

   If this opinion is based on your own research and not the opinion of others and you have examined and reappraised the situation closely, then fine, hang on.

Bear in mind,  Apple is a stock, not a religion. Plenty of stocks will double without breaking world records in the next 12 months.

2. If You have a ton of Apple stock and feel uneasy. Either:
   1. Put a stop-loss in. Preferably a mental one but if you don’t trust yourself to pull the trigger put it in with your broker (but not at any obvious round number point like $500).

Or...

2. Top slice your position, so that what you hold is small enough to calm your worries.

Then ensure you watch very closely.

3. If you have some Apple in your portfolio and would prefer not to lose much.
   1. Put a stop-loss in.
   2. Sketch out 3 narratives for the happy future trading of the stock then hold while the stock performance fits the narratives. If it doesn't perform to your imagined expectations, drop it.

Anyone holding any stock--but particularly 'winners' like Apple--should periodically ask themselves 'Why do I hold this?' Then check the facts.

Bears see Apple as a 'hit-driven' company, adrift, (like Pixar), without Steve Jobs, its founding genius. Bears see unsustainable margins, increasingly encircled by ravenous and ruthless competitors who are seemingly getting close to emulating Apple's amazing product.

Bulls however, see stellar metrics, more 'hit products,' a history of unstopability and a company imbued with a new kind of corporate DNA capable of producing yet more miracle products, unbound by the laws of large numbers.

Time will tell.

If there's one thing Apple holders should do, it's to look back over the years to see what happens next when a stock's ballistic chart performance finally comes to an end.

Clem Chambers is CEO of ADVFN.com and is author of 101 Ways to Pick Stock Market Winners.