Every era has its must-own investment. Dot-coms ruled the day in the early 2000s. Everyone had to buy a house to flip in the mid-2000s. And in the ’50s and ’60s, investors couldn’t resist General Electric.
But now there is one stock that’s taken on rock star status and shows up in more portfolios than any other, Apple. Shares of the nation’s most valuable company have dazzled both individual investors and professionals, and loading up on the stock has been one of the best moves they have made.
Thumbing their noses at aged financial advice preaching for the need to spread money around dozens of investments, or diversify, investors have found that zeroing in on this one company is their ticket to a big Wall Street score. The stock has been a winner despite its recent decline, which briefly pushed it into a 10 percent correction. At its close of $629.7 Friday, it’s still up more than 50 percent this year, which compared with the 15 percent gain in the broad Standard &Poor’s 500 index makes it a runaway winner.
“I don’t want to diversify that much when I have one stock doing just fine,” said Matt Loud, a 28-year-old security worker in Bellingham, Wash., who has upward of 38 percent of his retirement accounts in Apple.
Loud is part of a crowd of investors who have become infatuated owners of Apple — and richly rewarded as a result. Just as investors poured into Fidelity’s Magellan mutual fund in the 1980s, Apple stock has become a Wall Street sensation, and investors can’t seem to buy enough of it.
Apple is by far the stock most widely held by individual investors using portfolio-monitoring site SigFig. The extent that shares are owned is head-turning:
• Nearly 17 percent of all individual investors own Apple shares, SigFig says. That’s three times the level of ownership of Google.
• Four times more investors own Apple than the average ownership of the 30 stocks in the Dow Jones industrial average.
• Apple investors, on average, have nearly 17 percent of their portfolios riding on that one stock. And Apple is the top holding of just about every type of investment style there is, including buy-and-hold, active, very active and aggressive investors, SigFig says. Buy-and-hold investors have less than 10 percent annual turnover of their portfolios, while aggressive investors turn over their portfolios completely each year.
• Apple was the No. 1 most-traded stock at top online brokerage TD Ameritrade every day in September except Sept. 19, when it was No. 3.
A runaway winner • And although piling into just one stock may violate the rules of diversification, it’s hard to argue with performance.
Until the swoon that started in mid-September, shares of Apple had been on such a tear that they made the rest of the stock market look like it was standing still, and that’s despite the stock enjoying a pretty good performance the previous two years. The 57 percent gain in Apple this year comes on top of a 26 percent gain in 2011 and a 52 percent gain in 2010. The S&P 500 was flat in 2011 and up 13 percent in 2010.
With performance like that, it’s hard for investors to understand why they should diversify and dilute what might be their best stock.
Consider Pat Sutter, retired from the Army, who runs various businesses in Surprise, Ariz. Nearly 40 percent of Sutter’s portfolio is in Apple, simply because it’s going up so much faster than anything else he owns. “I know in my heart I have too much Apple,” he said. “But because so much of it is profit, it’s not something that concerns me.”
Sutter has never bought an Apple product, and prefers mobile devices using Google’s Android operating system. But he bought Apple stock years ago anyway, watching how consumers, including his own family, will buy just about anything with an Apple logo. Apple products “aren’t for me. But I like it when they (family members) upgrade to the next iPhone. I love that.”
Meredith Habif, a 35-year-old housewife in the San Francisco area, has already loaded up on more Apple stock. as it now accounts for 75 percent of her overall assets. She says she prefers to follow just a few companies and bought Apple stock when the first iPhone was released in 2007.
Nearly 25 percent of Jim Rodgers’ personal portfolio, and that of his 24-member investment club, is plowed into Apple stock, said the 69-year-old retiree in State College, Pa.
It’s not just individual investors who are enamored with Apple’s stock. The professionals have taken a bite, too. Nearly 20 percent of all U.S. mutual funds, 1,231 of the 6,998, own shares of Apple, making it one of the most widely held issues, Morningstar says.
The professionals, to some degree, are forced to buy Apple stock, said Robert Maltbie of Millennium Asset Management. Apple accounts for 10 percent of the Nasdaq composite index and 5 percent of the S&P 500 index. Investors who don’t own the stock are fighting a headwind that’s difficult, if not impossible, to overcome when they try to keep pace. “If you don’t own it, you almost have to,” he said.
Funds that have bet big on Apple, not surprisingly, have been huge winners as a result. For years, the Berkshire Focus mutual fund has had the largest percentage of its total assets in Apple of any mutual fund, Morningstar says. Nearly 24 percent of the mutual fund is invested in Apple stock.
Malcolm Fobes, Berkshire Focus’ portfolio manager, says it’s his job to find the best stocks possible, and he has a tough time finding anything nearly as appealing as Apple. “Apple is the holy grail stock. It has been for years.”
Demand for the company’s products remains strong, which appeals to his investing sensibilities for fast-growing companies. But at the same time, by Fobes’ estimation, the stock is cheap, too, a rarity among companies growing as rapidly as Apple.
Because the stock is so reasonably priced, Fobes doesn’t think there’s much downside, even if the company falters. And in fact, the stock has posted big gains this year despite Apple’s disappointing third fiscal quarter earnings in June, as well as less-than-expected initial sales of the iPhone 5 smartphone.
Cautionary tales • Yet, it’s precisely when it looks like a company or stock can do no wrong that they often do. Wall Street is filled with examples of previous investment sensations that have ended badly.
The dot-com crash of 2000 was epic because many of the investors who thought they had to own Internet stocks saw their holdings lose 60 percent to 99 percent of their value. Similarly, the housing boom wound up in a real estate crash from which the U.S. still is trying to recover.
Most of the “Nifty 50” stocks that were popular back in the day wound up underperforming the market during the bear market that didn’t end until 1982. And too many people have learned the hard way the dangers of getting carried away with the hype surrounding a company —even one in a “safe” industry — and putting too much of their portfolios in that single stock. Enron was a prime example.
“The world is littered with companies that were going to conquer the world and didn’t,” said Kim Caughey Forrest of Fort Pitt Capital. Even a seemingly minor disruption to a company, especially in technology, can cause a stock to falter. Diversification is “what portfolio theory is all about,” she said. “It’s not just about gains, but it’s also about keeping those gains.”
Some professional investors think the Apple hype is outpacing reality. Rupal Bhansali, a portfolio manager at Ariel Investments who runs a global and an international fund, has “zero” assets invested in the iPhone maker. She says Apple’s domination won’t last forever. Competitors will catch up. New innovations will emerge. Just because you are No. 1 today doesn’t mean you will be No. 1 tomorrow.
“It’s the nature of electronics and technology,” said Bhansali. “Sony was the Apple of Japan a decade ago. Remember the Walkman?” The Japanese company is no longer considered cutting-edge, and its stock, now trading at $11.51 per share, is roughly 50 percent below its 52-week high and 90 percent off its all-time high in 1999.
Even some of Apple stock’s biggest fans are wondering if the company is starting to lose some of its competitive edge, now that it’s a corporate titan. Rodgers says he doesn’t think Apple, under the guidance of co-founder Steve Jobs, would have released the iPhone 5 with such egregious problems with its mapping feature. And Habif laments the decision to change the port on its iPhone.
Habif is wondering if even Apple might eventually hit a wall as it becomes a victim of its own success. Each iteration of the iPhone gets increasingly repetitive, she says. She worries that because Apple stock is already such a darling and in so many investors’ portfolios, how much higher can it go?
Once the stock hits $750, she’s selling “If everyone owns something, who is left to buy more?”