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28 April 2024

Note From a Former Apple Analyst, Part II


April 28, 2024

One of our strongly held investment beliefs is that you don’t (usually) get paid to take “single-stock risk”. While we aren’t zealots for the efficient market hypothesis, in most cases, casual investors don’t have reliable insights on the fair value of a stock that the market doesn’t already reflect.

A little over a year ago, we wrote about Apple. As a company that everybody knows and many love, we frequently came across portfolios that hold way too much of the stock compared to any reasonable benchmark.

Our newsletter was not a research report recommending to buy or sell. It was instead a suggestion to those with an outsized stake to take some of the gains off the table and diversify into the myriad other quality assets that make up the investible universe. The same suggestion could apply to anyone with an outsized position in any individual stock.

The gains in Apple relative to the broader market have been truly meteoric. It isn’t reasonable to expect the same experience going forward.

What has happened to Apple since?

We didn’t know that the International Trade Commission would rule that Apple infringed on Masimo’s pulse oximetry technology. Our crystal ball didn’t foretell the Justice Department suing Apple for its monopoly power. Or that sales in China would slump, or that generative AI would be the new shiny object in the investment universe.

What we did know is that Apple was the largest company in the world (a seat since ceded to Microsoft) on a leaderboard that is constantly in flux. We knew that we didn’t have any investment thesis rooted in the fundamentals to take a significantly larger allocation to Apple. And we knew a massive overweight to a single company creates risks investors likely wouldn’t be compensated for in the long term.

Sometimes this risk doesn’t manifest as a precipitous drop in the share price. It’s important to look out for the less obvious risk – that of quiet but chronic underperformance.

Over the past year, Apple stock has been effectively flat, while the S&P 500 has gained 23%.

We don’t know what the next year holds for Apple – will NVDA become the second-largest company in the world? Or Amazon? Have we already reached peak Apple? We don’t think it’s a good bet to stake your future on finding out.

What Risks are You Assuming?

Want to see how much stock-specific risk is in your portfolio?

Or perhaps see a projection of what might happen if interest rates spike? Or the S&P 500 nosedives?

We can also explore more optimistic scenarios to see how much of the upside you’d capture.

Fill out our Financial Fact Finder and attach a recent statement. We’ll provide a detailed analysis of your portfolio, what less obvious risks might be underfoot, and multiple scenario analyses.