“You are not special. You’re not a beautiful and unique snowflake. You’re the same decaying organic matter as everything else. We’re all part of the same compost heap. We’re all singing, all dancing crap of the world.”
― Chuck Palahniuk, Fight Club
Regular readers of RiskReversal know by now that I am a trader by training and a financial pundit by accident. I do enjoy doing commentary on TV and the web as I feel that most opinions espoused in the financial press/web are similar, often unoriginal group think. My appearances on TV and my commentary on RiskReversal allow me the opportunity to poke holes in traditional market wisdom. Someone needs to do it.
Last night on CNBC’s Fast Money program we had a discussion (here and here) about Apple (AAPL), its impending product launch, expected increase to its capital return program and fiscal Q2 earnings due April 27th. When the analyst was done with his thoughts, we do what we do on Fast Money, we “trade” it. One of my co-panelist, who’s also prone to a non-consensus view and whom I respect very much, suggested that he has little edge in attempting to trade AAPL, and he sides with other pundits who have been long and strong the stock. Those who think you own AAPL, you don’t trade it.
That’s all fine and good, its been the right thing to do, especially when you have some of the savviest and most successful investors (Carl Icahn) on the planet who thinks the stock remains a great buy and could see it with a $1 trillion market cap (north of $200 in the stock) in the coming quarters/years. But here is the thing, that is now a consensus view. There is no risk in AAPL stock, just buy it, close your eyes and check back a year from now.
I take issue with the notion that AAPL is not a trading vehicle like any other stock. The mere mention that AAPL should be put in some sort of special place, with special rules that does not apply to other stocks in the market makes me cringe. It’s a stock. A stock of a company that is very familiar to most of us because we all have their products. That’s all. To think otherwise places way too much emphasis on one stock and attaches too much emotion. Emotions that, if widely held, (which they are) could lead to unforeseen outcomes for investors.
Here is the thing for you peeps at home trying to outperform the market. If you think it is an insurmountable task, then buy an index fund, or an index etf and ride the wave. If you like picking stocks but you are a buy and hold sort of gal, then mazel tov, that works too. But if you like reading services like RiskReversal, and tuning into programs like Fast Money on CNBC I suspect you like to trade.
There are all sorts of hobbies, some like to knit, some play poker and some run Iron Man races (like my boys Guy Adami & Brian Kelly). Others like to trade stocks.
Do I think trading stocks as a stay at home individual investor with limited resources is a sound career choice? I do not. But if it is the hobby you do outside your day job, why the hell not?
But I see no reason to put the largest market cap stock in the world, which also happens to be the one of the most widely traded stocks and options every day, in a special category where you just own it. It has been a tremendous trading vehicle on both the long and the short side for years now.
This post is not a suggestion to short the stock. But the idea of putting it into some special category is silly. If you have owned it for a long time then you have sizable profits. If the size of the position is becoming disproportionate to other holdings in your portfolio, and the risks are mounting, then you have options (pun intended). You could sell calls, or strangles against your stock and add yield, that would definitely fall into the category of trading your AAPL. You could collar your AAPL stock by selling a call and buying a put, limiting your potential upside, but defining your potential risk to the downside. That would also be trading your AAPL. You could do the unthinkable and sell your AAPL and lock in profits and replace that long exposure with long calls, call spreads, or short put spreads, defining your future risk.
You get the point.