The Apple Maven has written quite a bit lately about the opportunity to buy Apple on the cheaper now. As of February 25, shares had corrected a bit over 15% in just one month – even though the stock is still up +70% over the past 12 months.
This conversation about buying the stock on the dip led me to a broader question: historically, what has been the best time to accumulate shares? A few plausible approaches include:
- buying Apple regardless of price
- buying near peaks
- buying on 15% dips (e.g. now)
- buying sharper corrections of 30%-plus
- buying above a certain moving average
Today, the Apple Maven explores the five approaches above, and determines which has been the best strategy for investors since the Cupertino company went public, in 1980.
Buy when others panic
My metric for assessing “success”, in this exercise, was the average forward one-year return. In other words: on any given trading day over the past four decades, what returns would each of the five strategies listed above have produced one year later, on average?
The graph below summarizes the results:
Average One-Year Return on AAPL, by Strategy
The base-case scenario is an investor who buys Apple shares every day, regardless of price. He or she would have raked in outstanding annual returns of 34%, on average – first bar above.
Now focus on the second, third and fourth bars. The deeper in the hole Apple shares go, the higher forward returns have been.
Investors that bought Apple only after 15% corrections have earned, on average, remarkable annual returns of 40%. Waiting for a 30% correction instead would have led to even better results: gains of nearly 50% per year!
Lastly, the moving average strategy that I considered was the widely used ten-month technique. That is: only buy Apple stock when the price crosses above the average daily price of the past ten months. This is traditionally a momentum approach to trading shares.
Here, the returns would have been just like the “buy at any price” strategy: 34%.
Now vs. then
Looking at the graph above, it becomes clear that bold investors who buy Apple when others want to dump the stock have done much better historically.
There is one important caveat, however. Apple shares used to correct more often and more steeply back in the 1980s and 1990s, creating several opportunities to “buy the panic”. Since around the launch of the iPhone, in 2007, the stock has stuck much closer to its peak.
Let me put some numbers around it. Between 1980 and 2007, Apple shares were in a 30% drawdown a surprising 66% of the time – i.e. roughly two out of every three trading days, on average. Since 2008, this ratio has dipped to only 14% of the time, or one in seven trading days.
For the past fifteen years, shares corrected beyond 30% only on a few occasions, and usually briefly:
- right before the announcement of the original iPhone;
- during the Great Recession of 2008-2009;
- in 2013, ahead of the highly successful launch of the iPhone 6
- during the 4Q 2018 broad market selloff
- for one single day during the COVID-19 crisis
Apple’s Drawdowns From A Previous Peak
Therefore, maybe “15 is the new 30”. In other words, a milder correction in Apple shares, such as the one that we have just witnessed in February 2021, may be about as good as it gets for buy-the-dip investors looking to add to their Apple positions.
Twitter speaks
I was curious to see what others thought was the ideal strategy for timing an investment in Apple shares. So, I asked Twitter the following question:
Read more from the Apple Maven:
(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)
