Love is blind, and so are some Apple AAPL -0.08% investors. If the comments on my last article are an indication, some investors’ love for Apple is so strong that they have discarded time-tested investment principles.
Lovesick investors probably cannot be helped, but astute investors may use this article as an opportunity to reflect on their Apple investment.
I have been a mega-bull on Apple since the low 100s and have said before that it has the potential to go to $1000. However, being a mega-bull does not mean discarding some of the sound principles that are programmed into our adaptive algorithms. Adaptive algorithms are algorithms that change automatically based on market conditions .
In my last article, Why I trimmed Apple at $525 , I provided a window to a tiny portion of our algorithms and the ZYX Change Method . Programming sound principles into algorithms and models enforces discipline in the investment management process and reduces mistakes.
Without bothering the readers with the complexity of the models and algorithms, here are some of the principles in plain English that are especially pertinent to Apple stock at this time:
Diversification
One of the keys to generating wealth over a long period of time is to own a diversified portfolio. The principles we follow for diversification are beyond the scope of this article, however it goes without saying that a 400% return on Apple has made Apple a disproportionately large position in many portfolios. Sound money-management principles alone call for trimming the position. My recent signal to trim the position is to be taken in this context. It is always best to trim a long…Read more at MarketWatch
