iConfess: Hello, My Name is David Nelson and I'm an ‘Appleholic’

Friday, 28 Dec 2012 01:43 PM

By David Nelson

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Image: iConfess: Hello, My Name is David Nelson and I'm an ‘Appleholic’
David Nelson is chief strategist of Belpointe Asset Management and a Moneynews contributor.

I'm not sure how it all started, but I do know the first step for any addict on the road to recovery is admitting you have a problem. Just as a new member in Alcoholics Anonymous would stand up and admit to the group that they are an alcoholic, I stand before the investment community and freely admit my addiction.

One thing is certain, I am not alone. Many if not most of you reading this are “Appleholics” as well.

Sure, it started off innocently with your first taste being a harmless iPod, but sooner or later you moved up to more powerful drugs like the iPhone and iPad.

Before you knew it, you were into the hard stuff, buying MacBook Pro's with jigabytes of memory and 17-inch screens. Pouring money into the Apple coffers with each hardware purchase wasn't enough to feed your addiction. No, you went all in. You became an iTunes fanatic, determined to replace every CD and DVD you ever purchased and make it available on your new array of portable Apple devices.

Finally, the last insidious piece of the puzzle takes place. You invest in your first shares of Apple (AAPL). And now are hopelessly hooked. The intoxicating rush from your stock gains fuels the addiction to buy even more Apple products.

Seven Signs You Are an Appleholic

1. Before getting out of bed in the morning you check the price of AAPL from your iPhone;

2. You feel more pain not owning AAPL while it goes up than owning it while it goes down;

3. You won't admit to yourself that the iPhone 5 was less than you hoped for;

4. You can't walk past an Apple Store without checking to see how big the crowd is;

5. You continue to put down all other smartphones even though you secretly like some of the features;

6. You keep telling yourself you didn't upgrade to the iPhone 5 because you wouldn't get the discount;

7. You are convinced the only reason AAPL shares are down is because of profit taking.

If you have three or more of the symptoms I describe above, I'm afraid the worst is true: "You are an Appleholic!"

The first signs of Apple withdrawal show up about 10 hours after a full sale.

Let me make one thing perfectly clear. Withdrawal symptoms only show themselves when you do not own any shares at all. Believe me, I know. I've been there.

After my last shares of Apple were sold I found myself thinking just like a Skid Row bum. I told myself, "I'll just keep a few shares to take the edge off. You know like having a sip of the hard stuff or a beer."

By settlement date, you will likely be waking in the middle of the night, sweating profusely and whimpering to yourself: "What have I done?"

Who can blame you? Apple stock has been a safe harbor throughout the last decade. Until recently, no matter what was going wrong with your investment thesis you could always point to your Apple stock as a smart move, unless you were among the unfortunate few who bought the stock a couple of months ago.

Don't get me wrong. Apple is a wonderful company and most of the time it is a very good investment. Unfortunately in recent years, with the rise of the stock has come complacency. In just a few short months that complacency has been replaced by fear as the stock tumbled a quick 180 points.

The company’s relative cheap valuation makes it stand out on any stock screen. Ex-cash, it trades with a multiple in the single digits, however the company is so dependent on new product cycles that it will likely always trade lower than the overall market, as the company must continue to push the edge of the envelope on innovation.

Apple can certainly surprise on the upside this quarter, especially since the bar has been lowered for weeks. However, analysts are tripping over themselves to cut estimates, some pointing to supply constraints and others pointing to lost market share.

The biggest reason for the decline is its market cap. Once the market cap got to $600 billion, Wall Street started to extrapolate past growth, indicating this would be a $1 trillion company in just a few years. Apple is not immune to the law of large numbers, and future gains become increasingly difficult as growth inevitably slows.

I have no idea if Apple is going to disappoint for a third time in the upcoming quarter. Activity in the stores seems brisk, but I must admit I have passed our local store and sometimes noticed more employees than customers (Appleholic sign No. 4 is checking store for foot traffic!).

Given the data in front of me, I'm taking a pass on this quarter's release and remain on the sidelines.

What I need to see to get back in:

• While I believe the iPad Mini will deliver blockbuster numbers this quarter, I want to see how much it cannibalizes the iPad and what affect this has on margins.

• iPhone numbers are critical as they represent such a large part of the top and bottom lines. Any weakness here and the stock will suffer regardless of its valuation.

• I want to see guidance raised. Analysts have been taking numbers down for weeks.

Three Steps

While Alcoholics Anonymous uses a 12-step program to put members back on the right track, Appleholics only need three steps.

1. Go more than one month without trading Apple stock;

2. Don't look at the price of Apple until 10 a.m. for five consecutive trading days;

3. Make amends to your friends who own a Galaxy or other device. Blackberry owners are people too.

Fighting this addiction is a day-by-day process. Staying clean will be difficult at best and if Apple's stock finds its mojo, it will be impossible to keep from falling off the wagon.

© 2014 Moneynews. All rights reserved.

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