In a recent appearance on Bloomberg TV, anchor Tom Keene surprised me with this question: “What is your best Apple story?” I said that in the early 2000s I managed to snag a loaner iPod soon after they were released. It was obviously a new, digital version of the ubiquitous 1980s Sony Walkman. At the time, Apple Inc.’s shares were trading at $15, with $13 a share in cash on the balance sheet. I did not see a lot of risk in the shares. I pitched it to my firm’s 800 or so brokers, many of whom bought lots of shares.
brokers began to sell. “Up big, 33 per cent, gotta ring the bell,” is what I was told. I held on, and finally sold when my “stop loss” order was triggered on a pullback after the shares reached $45, leaving me with a 300 per cent gain. “A triple!” I smugly declared, in what was probably the worst sale I ever made.
In a career filled with other bad trades, missed opportunities and judgment errors, some decisions stand out, not just for the lost money, but for the lessons learned. Here are four examples:
Apple at $15: I may have paid $15 a share, but that was numerous splits ago, which means that had I held onto that Apple stock through last year, my post-split cost basis would have been 26.78 cents per share. That was about $2.4 trillion dollars in Apple’s market capitalization ago. From this I learned two lessons: The first and obvious one was to avoid too tight stop losses. I was raising my stop with each $10 gain; a $13 stop on a $15 purchase became $23 once the price crossed $25. Volatility guaranteed that such a tight stop would eventually get executed.