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Kent Thune

Apple vs S&P 500 (Or When Momentum Investing Doesn't Work)

By January 25, 2013

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Without looking at the historical performance data, most investors would guess (and be correct) that Apple stock (AAPL) has vastly outperformed S&P 500 Index funds over the long-term. But the underlying story here is that the vast majority of individual investors have knowingly or unknowingly engaged in a type of momentum investing with Apple stock. In different words, a large number of do-it-yourself investors have recently been burned by Apple's fall.

Apple's Performance vs the S&P 500

If you are among the extreme minority of investors that bought Apple in the 1980's, you have enjoyed more than a 10,000% total return. For some perspective, a 10,000% return on $1,000 is $10 million.  That makes retirement savings simple, to say the least, right?

However, the vast majority of investors owning shares of Apple stock in recent months did not buy in the 1980's; they jumped in along with the crowd sometime within the past year or two as the stock price doubled and tripled.

Check this comparison between AAPL and the S&P 500 (data from Morningstar, as of January 24, 2013):

  • 3-month return: AAPL -26.54% vs S&P 500 6.75%
  • 1-year return: AAPL 8.42% vs S&P 500 16.29%
  • 5-year return: AAPL 27.44% vs S&P 500 4.33%

Over the past 3 months, AAPL lost nearly one-third of its share price while the S&P 500 gained an impressive 6.75%.  Over the past year, the S&P doubles that of AAPL (who would have imagined that?).  But the long-term picture still paints Apple much brighter than other large-cap stocks.

The question is: How many investors were investing on momentum and bought shares of Apple in the last year? I don't know the answer to this but I am confident the number is much higher than those who bought shares 5 years ago or more.

Perhaps the lesson here is that even the unimaginable can happen.  The trend is not always your friend. Is Google (GOOG) next?

December 14, 2013 at 3:33 pm
(1) Bank Life Insurance says:

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