When they get too big…
Sometimes you get carried away by a moving stock and since you want to participate you add it to your portfolio. Most of the times you have watched the stock for a long time but didn´t have the guts to invest in it. Or you did invest in it only to find out that it turned south the very next moment. The market had just waited for you to jump in. Once in a time though you find that magic stock, you invest in it and to your surprise it goes on and makes money, lots of it. Shouldn´t you be a bit suspicious? Here is such a stock
Now this is an interesting story about a stock that made money, tons of it over the last couple of years. The problem is, it get too big now. Let´s look at Apple. When it hit its recent low of about $80 in december of 2008 nobody wanted it. But then it started to rise and soon people realized they need to be joining the party. Even though it was a slow moving market in 2009, it was rising up basically unnoticed by everybody because nobody could believe it. So Apple creeped up and doubled in a few short months. It is still going up and it is still a good company making lots of money as we could all see this week when they reported earnings. But when we start reading articles of adding it to the DOW, this gets a bit scary. Not that it probably didn´t deserve it, Apple probably does, but it becomes too big to make a substantial move. It now costs $270 and if it doubles it will cost $540 but can we expect a move like that in the upcoming months? Probably not, so what is my assumption?
I have an eye out for the risk management of Apple. It becomes more risky simply because it can move but it does it slower than it used to do it. That means that i can probably find better opportunitys out there. So do i sell the stock if i own it? Not necessarily but i move my stop a little closer to the price.
The risk in the stock is shifting slowly against us and that happens very often, when stocks get too big. You need to be aware of that if you own a stock like it.
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