Continuation from yesterday…..For our purposes, we must now ascertain if it would have been possible to predict this meteoric rise and take position in the stock around 2002-2003 from the fundamental perspective alone.
The short answer is NO.
While an analyst working with Apple back in 2002 could have predicted the popularity of iPods and the success of iTunes (in theory), it would have been impossible to anticipate future blockbusters. No technology futurist at the time could have predicted the iPhone, the Apps Store or the iPad. It is not even clear if such products existed in Steve Jobs’s mind as far back as 2002-2003. And even if someone was able to predict the appearance of such products, it would have been impossible to predict if the market would have accepted them or not. The technology field is littered with dead products that were way ahead of their time.
The best any fundamental investor could do in the 2002-2003 time frame is as follows…
- Analyze Apple’s rapidly growing iPod business and determine that iPod’s sales cycle and its popularity is just starting. That it would be a massive hit for Apple over the next few years. It would be an educated guess, but it would be better than nothing.
- Assume that Steve Jobs and Apple will continue to introduce revolutionary products (similar to iPod) over the next few years. That could have been ascertained from studying Steve Jobs and understanding his drive for innovation. Still, it would have been a hit or a miss proposition. Just because Steve Jobs introduces a new product doesn’t mean it will be a huge success. He did have a number of large failures throughout his career.
Which bring us to the decision making time based on the fundamental analysis alone. Apple was not a clear cut case. The economy was in the dumps, the technology sector was devastated by the burst of the tech bubble and while Apple did have a hit product, it was not necessarily evident. Plus, with the iPhone introduction being 5 years away, the best any investor could do at the time was to add Apple’s stock to his or her well diversified portfolio. In hopes that the tech sector will recover and that Apple’s iPod business will continue to drive the company forward. Yet, no one could have predicted that Apple would go up 3,700% over the next decade based on the fundamental factors alone.
TECHNICAL ANALYSIS:
Since the fundamental analysis did not necessarily yield a strong buy signal for Apple in our 2002-2003 time frame, we must now concentrate on the technical side of the equation to see if we would have had better luck there.
As you can see from the chart above, Apple’s stock price collapsed in conjunction with the Nasdaq in the fiscal 2000. Going from $20 a share to $2 a share in a matter of nine months. Thereafter, the stock price remained, more or less, within a tight $1.80 to $3.60 trading range for two and a half years. That is until the April of 2003.
What happened in April? Apple’s stock price bottomed at around $1.85 a share and then started its massive multiyear rally. What else happened around the same time? The Dow set a clearly defined secondary bottom in its bear market of 2000-2003 and started its 5-year bull market of 2002-2007. Essentially, Apple’s stock price bottomed at exactly the same time as the stock market. This transfers the burden of the rest of our technical analysis to our timing and mathematical work.
To Be Continued On Monday…..
