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There is a Rotten Apple in Your Mutual Fund

No stock is safe from buy-and-hold. Even Apple.


How many people reading this blog post already own an iPhone? What about your family and friends? Last Thursday, the investment world came to grips with the answer to that question. It seems that too many people already own an iPhone.

Based on last quarter’s sales, and the outlook for future sales, at least 30 of the stock analysts who follow Apple cut their growth and earnings forecasts for the remainder of 2013. Apple is likely to sell fewer new phones, for less of a profit, going forward. Those facts might make Apple stock drop even more.

Last fall, Apple stock price peaked.  It is down about 40% since then.  The stock dropped more than 12% in price just last Thursday.

Apple stock is held by over 5000 mutual funds, index funds, and exchange traded funds all over the world.  Chances are that you currently own Apple stock in just about every mutual fund that you own now both inside and outside of your company retirement plan account.

To make things a little more scary, 27 of the largest mutual funds in the U.S. own about 13% of all Apple stock.  Apple stock accounts for 3.6% of the S&P 500 index, and over 10% of the Nasdaq Composite.

The historic plunge of Apple last week is the most recent reminder that the buy-and-hold investment management philosophy is dead. Whenever stock market investors believe that the investment returns of a stock they own can go up forever, that is exactly where the trouble begins.

Most stock market investors who own Apple have always made money owning the stock. They never considered the possibility that the stock would go down in price.  And never, ever, did they think that the stock could go way down in price!

No Minnesota stock market investor or company 401(k) retirement plan participant can afford to be unaware of the risk level of the individual stocks they own, or of the individual stocks that make up the mutual funds that they own. 

There are no sacred cows in the stock markets. The dramatic price decline of Apple is the most recent example.

An individual investor can play the buy-and-hold game when they are just starting out investing in their 20’s and 30”s.  When you get into your 50’s, the buy-and-hold investment strategy is more of a buy-and-hope investment strategy.

In the old days, you could afford to buy-and-hold your home and your stock market investments. When you were ready to move or sell, those investments would always be worth more than you had paid for them.

Even casual investors have now realized that any long-term investment strategy has to include a game plan to manage the investment risk over the time period that you own the investment. 

When the economy and the stock market tide turns against your investments, you need a better strategy than buy-and-hold. The investment risk that you take has to be managed at all times.  No matter how much you love your cell phone
or iPad.

Ric Lager
Lager & Company, Inc.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

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