I have often talked in Market Musings about the importance of understanding the difference between trading and investing. As most people are aware, the most basic difference between the two is the time frame. Trading is inherently short-term, with trades designed to be closed out in minutes, hours, or maybe days at most, whereas investing is long-term. Investors typically buy stocks with a view to holding them for years, and maybe even decades in some cases.
That may sound obvious, but all too often, investors who should be buying for the long-term allow themselves to be impacted by short-term influences. They listen to and read market-related stories that are really catering to traders and make investing decisions based on them. One example would be what is going on with Apple (AAPL) right now.
The stock is down over twenty percent from its 52-week high of 182.94, achieved in early January, including big drops in the last two trading days. If you listen to the news, that the stock has dipped may seem to make sense and, from a trading perspective, it does. However, for a long-term investor, this drop represents an opportunity to add to holdings or establish a long position in AAPL at a discount. The news is bad, but only for the short-term, and it in no way impacts the long-term value proposition for the company and its stock.
Let’s start with the least impactful story, the latest beef with Elon Musk. Musk has claimed that Apple is threatening to withdraw advertising from Twitter, and, for some reason, that seems to have affected the stock’s price negatively. Leaving aside the irony of someone who claims to be all about free speech getting upset about a corporation exercising its rights to freely speak by putting their money where they like, this is at best a non-story for Apple. Does anyone really believe that not advertising on a social media platform will hurt Apple? I certainly don’t.
A much more substantial and influential story is the situation in China. The resurgence of Covid and the resulting lockdowns will presumably impact supply to Apple during the holiday season, while the protests in response hint at the possibility of real social unrest that could have much wider implications in terms of economic growth, demand, and supply. Whatever happens, Apple’s reliance on China for both supply and demand means that they will be adversely affected.
However, investors should be asking themselves whether those adverse effects will still be an issue five years from now, or even in one year, and the answer to that question is probably no. At some point, China will either develop a more effective vaccine themselves or quietly give in and start to use the Western vaccines that actually work and, when they do, things will get to where they are in the West right now, with Covid still around but not being a big economic factor.
In other words, the surge in Covid cases, the zero Covid policy, and the unrest as a result of both, are likely to be short-term problems, at least specifically in terms of their impact on AAPL. Traders should be paying attention to them and obviously are, but that short-term volatility doesn’t change the fact that Apple continues to grow. Their EPS for their financial year 2022 was $6.11, up from $5.61 last year and $2.97 in pre-pandemic 2019.
That is because they continue to produce probably the most desired consumer product in the world in the iPhone, as well as a host of other complimentary products and services. And yet the iPhone accounted for only 17.2% of global smartphone shipments in Q3 of this year, leaving lots of room for further growth in coming years. That is what matters to investors, not Musk’s whining or even a pandemic and social unrest in China. News stories that impact traders will come and go, but a great product and good marketing endures, and that makes AAPL a buy for long-term investors on this dip.
In addition to contributing here, Martin Tillier works as Head of Research at the crypto platform SmartFI.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
