Why you shouldn't load up on Apple, or Facebook

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Why you shouldn't load up on Apple, or Facebook

Postby larryswedroe » Thu Apr 26, 2012 9:19 am

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Re: Why you shouldn't load up on Apple, or Facebook

Postby rai » Thu Apr 26, 2012 9:31 am

great food for though, and I own 'too much' Apple I do want to sell and replace with an index. But I have so much cap gains I would have to pay many thousand dollars taxes.

I do agree with you that it would be great for me to swap out Apple for VTI, I am not sure it has to be this very instant (when I can stand the risk) and when the tax of selling is beyond question the loss ov value in the next few months is not beyond question (the fear is selling now to get out of the risk and miss out on another $300 gain in share price call it greed I guess or selling remorse).
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Re: Why you shouldn't load up on Apple, or Facebook

Postby Grt2bOutdoors » Thu Apr 26, 2012 9:36 am

rai wrote:great food for though, and I own 'too much' Apple I do want to sell and replace with an index. But I have so much cap gains I would have to pay many thousand dollars taxes.

I do agree with you that it would be great for me to swap out Apple for VTI, I am not sure it has to be this very instant (when I can stand the risk) and when the tax of selling is beyond question the loss ov value in the next few months is not beyond question (the fear is selling now to get out of the risk and miss out on another $300 gain in share price call it greed I guess or selling remorse).



There is no free lunch. Think of it this way, how would you feel if your "thousands in gains" evaporated overnight? I would pay those taxes for 2 reasons - 1) capital gains taxes will never be this low in the foreseeable future and 2) I'd rather have 65 cents in my pocket than 50,40,30 or 10 cents.

It is "found" money, take it and RUN!!!!
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Re: Why you shouldn't load up on Apple, or Facebook

Postby yobria » Thu Apr 26, 2012 9:56 am

Indeed, by holding only Apple and Facebook, you've made a 100% bet on just 5% of the economic value, sales, profits, future earnings, etc. of the US stock market.

And while historical data patterns show these stocks have outperformed, the future is a very random place. Diversify.
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Re: Why you shouldn't load up on Apple, or Facebook

Postby larryswedroe » Thu Apr 26, 2012 10:54 am

Only thing worse than having to pay taxes is NOT having to pay them

Also tax rates almost certainly headed much higher next year, so if going to sell now is good time to do so

Just ask the people that owned Cisco and Intel and Microsoft, etc back in 2000 if they would have liked to sell the shares then and pay the tax!
Best wishes
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Re: Why you shouldn't load up on Apple, or Facebook

Postby asset_chaos » Thu Apr 26, 2012 8:32 pm

Vanguard says Apple is the largest stock in the Total World stock fund at quarter's end at 1.6% of the fund. My portfolio is about 2/3 stock, mostly in total world. So, roughly 1% of my portfolio is hitched to the fortunes of Apple. That's quite enough, thank you.
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Re: Why you shouldn't load up on Apple, or Facebook

Postby Fallible » Fri Apr 27, 2012 12:32 pm

I'm a longtime indexer with NO intention of - or expertise in - buying individual stocks. But this still is an important article for me because even though I know why I shouldn't speculate in stocks, especially hot stocks, the temptation - tiny, but still there - means I'll always need to be reminded. Thanks, Larry.
"Common sense and a sense of humor are the same thing, moving at different speeds. A sense of humor is just common sense, dancing." -William James
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Re: Why you shouldn't load up on Apple, or Facebook

Postby stratton » Sun Apr 29, 2012 2:53 pm

If you own any actively managed funds you may have more Apple stock than you thought.

Style Drift! Lots of inappropriate AAPL Holdings

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...and then Buffy staked Edward. The end.
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Re: Why you shouldn't load up on Apple, or Facebook

Postby campy2010 » Sun Apr 29, 2012 4:47 pm

It also looks like some mutual funds will own Facebook earlier than they might have in the past. NASDAQ decreased the waiting period for IPOs to be added to its indexes from 2 years to 3 months.

The article goes on to say that it takes 1 year for IPOs to be added to the S&P 500. So, I don't think this change will affect my index funds, which is good. I would rather lose a little on the upside of IPOs like Facebook than to be forced into buying before the executives, employees and speculative investors are able to head for the exits.

"A decision by Nasdaq OMX Group Inc. NDAQ +0.28% to speed up Facebook Inc.'s inclusion in the Nasdaq-100 index is forcing money managers to rethink their investing strategies ahead of the social-networking company's public offering.

The Nasdaq on April 23 shortened the waiting period for publicly traded companies to join the Nasdaq-100 from as long as two years to just three months after the first month in which a company lists its shares on the exchange.

That means Facebook, whose IPO might come as early as mid-May, could be eligible for inclusion in the benchmark index on Sept. 1."

http://online.wsj.com/article/SB1000142 ... 61392.html
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Re: Why you shouldn't load up on Apple, or Facebook

Postby tractorguy » Mon Apr 30, 2012 10:13 am

rai wrote:great food for though, and I own 'too much' Apple I do want to sell and replace with an index. But I have so much cap gains I would have to pay many thousand dollars taxes.

I do agree with you that it would be great for me to swap out Apple for VTI, I am not sure it has to be this very instant (when I can stand the risk) and when the tax of selling is beyond question the loss ov value in the next few months is not beyond question (the fear is selling now to get out of the risk and miss out on another $300 gain in share price call it greed I guess or selling remorse).


Would you refuse to cash a lottery check because you have to pay income taxes on that income? Would you put the uncashed check on a table in a restaurant and hope that no-one else picks it up and cashes it? That's what you are doing if you hold off on realizing a gain in Apple because you don't want to pay taxes.

I read Steve Jobs biography and concluded that its a combination of luck and Steve's marketing strength that have made Apple so successful. It could have just have easily have been another NEXT (the computer company that he drove to bankruptcy). With the Ipod, Iphone, and now Ipad, Job's prejudices, the technology, and other company's missteps (eg Sony) happened to all line up with the market and made Apple wildly succesful. Its anybody's guess how long this will continue but it won't be forever.

When it ends, I don't think its going to be pretty. Jobs has very famously set up a corporate culture of giving customers things they don't know that they want. This breeds arrogance. The signs are there. (The antenna hiccup on the Iphone 3) When they finally miss the target, I expect that they will be in denial for quite some time before they realize that their new I-XXXX isn't selling because they can't make a market for it. I think its likely that someday Apple is going to fall as fast as it went up. But this is only my opinion.
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Re: Why you shouldn't load up on Apple, or Facebook

Postby ForeignInvestor » Wed May 02, 2012 2:51 am

Just a month ago I sold my AAPL holdings (after a beautiful multi-year run) and switched to XLK (SPDR Select Sector Technology ETF).

Am more comfortable with a 20% AAPL holding in a tech fund compared with the equivalent 100% AAPL exposure (that added up to 2-3% of my total holdings). My core holdings consist of VWO, VTI and VEA but am happy to "play" with a small percentage of my portfolio, betting on the tremendous dynamism we see in this sector. No doubt XLK will load up on Facebook at some point.

It all depends on your risk propensity and exposure of course: a 2-3% gamble works for me in the context of a broader Bogle-like portfolio, YMMV. A reasonable balance for those who want to take stock gambles and satisfy that part of their personalities while subscribing to a Boglehead philosophy -- as long as you can keep the percentages under control!
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Re: Why you shouldn't load up on Apple, or Facebook

Postby HonoluluGator » Wed May 02, 2012 8:34 am

larryswedroe wrote:Only thing worse than having to pay taxes is NOT having to pay them

Also tax rates almost certainly headed much higher next year, so if going to sell now is good time to do so

Just ask the people that owned Cisco and Intel and Microsoft, etc back in 2000 if they would have liked to sell the shares then and pay the tax!
Best wishes
Larry


I bought Apple last October and want to start selling some, especially before the new year. Should I wait until October for the lower tax rate???
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Re: Why you shouldn't load up on Apple, or Facebook

Postby larryswedroe » Wed May 02, 2012 8:38 am

Honululu
Alternative to waiting is to buy a collar, leaving at least 10% downside risk and 5% upside to avoid constructive sale. Given the huge gap in tax rates that is worthwhile considering
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Re: Why you shouldn't load up on Apple, or Facebook

Postby HonoluluGator » Wed May 02, 2012 11:59 am

larryswedroe wrote:Honululu
Alternative to waiting is to buy a collar, leaving at least 10% downside risk and 5% upside to avoid constructive sale. Given the huge gap in tax rates that is worthwhile considering
Larry



I have no idea what you just said. Looks like I need to do some reading.

I guess this link is the one to read...
http://www.forbes.com/2010/07/30/avoid- ... ategy.html
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Re: Why you shouldn't load up on Apple, or Facebook

Postby larryswedroe » Wed May 02, 2012 12:26 pm

Honolulu

A collar is what it sounds like. You buy a put (paying the premium) to protect the downside while you hold, and sell a call (and earn the premium). To avoid constructive sale by IRS (they say you got rid of the risks so for tax purposes you have been deemed to have sold), you sell call, at least 5% above market and buy put at least 10% above. Can be wider but not narrower. Many try to do it on zero cost basis. That limits your downside to 10%, while limiting gain as well, but protecting the asset and preserving the LT gain treatment. In case of Apple I am sure there must be a deep liquid market in puts and calls. Note we use this strategy very often for executives with concentrated stocks (as long as they are not restricted from doing so) and also in cases where have concentrated stock but don't want to sell because of low basis and contemplating death in near term (so would lose step up in basis for the heirs, avoiding the tax altogether).
Hope that helps
Larry
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Re: Why you shouldn't load up on Apple, or Facebook

Postby Beagler » Wed May 02, 2012 1:28 pm

TSM has already loaded up on Apple stock, as it's now the top holding of the fund. That's cap weighting: perceived value. (For those who insist its based upon real value, I ask you to remember Enron.)

By the way, VTSMX is down to 3295 stocks, fewer (and thus less "broadly diversified") than ever. Remember when this fund was based upon the Wilshire 5000? :D

https://personal.vanguard.com/us/funds/ ... st=tab%3A2
Last edited by Beagler on Wed May 02, 2012 1:33 pm, edited 1 time in total.
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Re: Why you shouldn't load up on Apple, or Facebook

Postby larryswedroe » Wed May 02, 2012 1:30 pm

Beagler
And it was over 7000 not long ago. Blame Sarbanne Oxley IMO. A real job killer as it raised the cost of capital by keeping smaller companies private (and they trade at about 30% discount for illiquidity). It may also explain any perceived deterioration in small cap premium--the really small stocks often don't exist any more!
Best wishers
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