Thursday, January 24, 2013

Update: Facebook Vs. Apple

 by Matt Malick and Ben Atwater

For investors like us, the picture above is an amazing sight.  It is a three month chart of Apple (blue line) and Facebook (green line).  Investing without a disciplined strategy is a gamble.  Throughout much of last year, Apple seemed to be infallible while Facebook’s “failed” initial public offering was the talk of Wall Street.  In late October, however, their fortunes reversed without warning – a trend nobody could have predicted.

On May 18, 2012 Facebook had its initial public offering at $38 per share.  The stock promptly plunged over the next four months to fall below $18 per share.  After experiencing some fits and starts, about three months ago Facebook found its footing and has since soared to over $31.

Meanwhile, Apple surged from $400 per share in January 2012 to $700 per share by the fall of 2012.  The stock, which at $475 billion is the largest market capitalization company in the Standard & Poor’s 500 (Exxon is second at $415 billion), was a major contributor to the market’s stellar performance until the 4th quarter of 2012.  Since then, the stock has fallen to around $500 per share – nearly a 30% drop.

The stock market’s strength over the last three months has come despite Apple’s weakness, which in and of itself is fascinating.

This is as good an illustration as any that attempts to make short-term, speculative stock picks can be treacherous.  Successful long-term investing is about limiting your mistakes, not hitting home runs.

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