Apple Stock: The Longer, The Better
Just recently, I argued that Apple was a stock to own, not to trade. Jim Cramer also seems to believe so, as he has said repeatedly on his show.
Today, I have decided to put some numbers around my claim. Here is the proposed exercise: since Apple’s 1980 IPO, I calculated the performance of an investment made in Apple on any given day if held for a period of (1) one month, (2) three months, (3) six months, (4) one year and (5) five years. Here are my observations.
A bit more gain in the short term…
Investors (or speculators) that buy Apple stock and hold it for only one or three months have, historically, produced better returns. In both cases, the gains have averaged 2.2% per month, which is a great number. This is probably a function of traders riding the rallies, which have been plentiful in Apple’s history, and not sticking around long enough to suffer from the corrections.
By contrast, the longer the investment horizon, the lower the historical return. In the extreme case of a five-year holding period, the median return has been only 1.5% per month – an amazing figure still, make no mistake.
… but also much more risk
Here is the trick though: in order to rake in slightly better monthly returns, short-term investors in Apple have had to endure disproportionately more risk. Here, the maximum monthly loss of those that held the stock for one month vs. five years did not even come close. Check out the graph below.
Month-long bets on Apple have historically produced a worst-case monthly loss of nearly 70%. Five year-long investments, however, have experienced maximum monthly loss of only 3% – which, to be fair, is still far from a desirable outcome.
Instead of looking at worst-case scenarios, it may be more useful to compare the 25 percentile returns. Doing so allows us to get a sense of how much an investor would have lost on Apple given bad, but not disastrous, timing on the purchase of shares.
At the 25 percentile, one-month bets on Apple have produced monthly loss of 5.5%. For five-year investments, the comparable number is a monthly gain of 0.5%. In other words: if held for long periods of time, an investment in Apple is very unlikely to produce negative returns at all, assuming history is a good guide.
The key takeaway
The quicker a trader buys and sells Apple shares, the more likely he or she is to produce slightly better returns than if the investment were held for longer periods of time. However, the modest outperformance comes at a much higher risk of losses. Given enough time, say one to five years or even more, it becomes much more likely that a bet on Apple will turn out to be successful.
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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)