The stock market is one fickle beast.
Without rhyme or reason, investor sentiment can change direction like leaf being blown by a breeze. A company can be on top of the world one day with a soaring stock and bullish sentiment across the board. The next day, investors can get spooked by the most insignificant rumors and turn bearish, sending shares plunging lower. Long-term investors need to learn to deal with the seemingly random day-by-day gyrations of price.
When I first started stock investing with a long-term horizon, the ups and down of stock prices were difficult to deal with. I felt like a genius when my stocks would soar higher. At the same time, when a stock I had purchased plunged, I would get worried, angry and lose confidence in my decisions.
I learned a simple yet highly effective method of dealing with this emotional roller-coaster. Over time, I internalized the fact that price and value are two completely different things. This sounds obvious, but dealing with the truth is far different than intellectually understanding the words.
My start in the stock market was as a short-term/day trader. Short-term traders are concerned only with the price. A long-term investor should be concerned with value first, then price. Being focused on the true value of a company, rather than the daily price changes, keeps the emotions in check and allows for better investment decisions.
Remember, as a long-term investor, you should buy value. Value is what lifts price in the long-term despite the short-term price fluctuations that shake out investors who don’t understand this concept.
One stock I believe is the embodiment of this idea is the venerable tech giant Apple Inc. (NASDAQ:AAPL).
Back in April, I wrote that as long as shares stay above the 200-week simple moving average, Apple Inc. (NASDAQ:AAPL) remains a buy candidate with an 18-month target price of $550 to $575.
Well, that’s exactly what is occurring right now. The stock dropped almost exactly to the 200-week simple moving average prior to bouncing higher since around the first of July. Shares are very close to taking out the $500 barrier on the daily close.
Many investors lost faith in Apple Inc. (NASDAQ:AAPL) during the plunge. But investors who remained focused on value, rather than price, have been rewarded as Apple recovered its losses for the year. Investors who took the opportunity to buy shares during Apple Inc. (NASDAQ:AAPL)’s plunge and used simple technical timing tools have earned a tidy profit over the past 90 days.