New Energy Weekly – History Lessons

History Lessons in the Stock Market

“I just can’t see selling my Apple stock. It’s the best investment I ever made…”

My dad and I were discussing the stock market. It’s not a common subject between us, because he really doesn’t understand it. This conversation was a perfect example.

It started out because he read a headline about the overvalued market. And I chimed in that I agreed. I showed him several data points (which we wrote about here many times!). But while I was talking about the future, he was stuck in the past.

He wasn’t wrong. He bought Apple stock for himself and his grandchildren. The stock performed exceptionally well, as you can see here:

But that’s the past. And as I pointed out that these are “paper gains”. They aren’t real until you sell the stock. Ironically, even though he’s in his seventies, he couldn’t envision a situation where this stock could go down.

I love his optimism.
I immediately jumped to 2008. That was the most recent example of a bear market and Apple stock was listed at the time:

The red line here is the S&P 500. As you can see, the Index fell nearly 50% at its lowest, Apple on the other hand, fell 60%.

It took Apple 18 months to get back to even. So that was dead money for a year and a half. Worse, it was a missed opportunity. If you sold when the stock began to fall, you had cash to buy it at the bottom.

If you did that (because we all know Apple isn’t going bankrupt), you made a LOT of money on the way back up. That’s a better option than sitting on a loss for a year and a half, hoping the stock recovers.

This is the problem with the current market. Many (many) people are like my dad. They are sitting on big paper gains but are afraid to sell. They don’t want to miss more gains.

The other problem is the investors who are too young to remember 2008. They are going to learn a difficult lesson in the next bear market. And make no mistake…there’s another bear market coming.

The question is when.

That’s why we harp on being prepared. This market is stretched. There are a lot of indicators pointing to a break. We believe having cash will prepare us to buy when everyone else sells out. Remember that old adage buy low, sell high?

Well, the market is high right now.

For the Good,

The Mangrove Investor Team