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Why are Apple shares down today?

February 18, 2011

The following analysis applied only to a great company such as Apple. The greater a company is the more likely it is that insecure investors will develop a shorting mentality as share price climbs.  Apple shares went up by $60 since the beginning of the year, down by $5 today. The number of insecure investors increased. Amateurs are selling today and taking profit. Apple shares are not sold today by professional investors.  Apple shares will resume going up till the next small panic adjustment. That is why graphs can never look smooth. Use the 200 days moving average to “smooth up” the Apple curve. Do it and you will see a beautiful Apple trend!

Let’s do a crude theoretical analysis so you can understand why insecure investors sell. They bought Apple at $300 on January 1, 2011. At $360 after 60 days, they made $1 per day for 60 days, or about 20% profit in 2 months or theoretically 100% profit per year. That looks unsustainable to amateurs! True, every trading period a share price goes up the probability increases that it will go down, but Apple is a great company. Anyone can predict a small periodic adjustment in its share price on the way to $400! The number of adjustments when the share price hits $420 will probably be similar to the number of adjustments made between $300 and $360! Now, this is only theoretical. Practically speaking, a long-term Apple investor buying after a $5 or $10 share price dip is as good as it can get, barring a $50 temporary dip when Steven Jobs departs permanently as a CEO!

Read my books. It isn’t difficult to be a great investor if you learn to use your mind in new ways. You have to get out of the box to resist taking premature profits. Rule: The closer one gets to day trading, the poorer one will get!

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