In my previous portfolio update I discussed why I was buying shares of TD in my LIRA account. Today I’d like to share with you why I am selling half my shares of Apple before the iPhone 5 launch tomorrow. Before I go into the details of the transaction however, here’s a lesson I learned about the company.
The company’s stock has predictable patterns. It rises several months before a new product announcement and then drops and holds steady for several months after.
Case in point, Apple announced the iPhone 4s on October 4th, 2011 but the stock sold off just prior to the announcement. It recovered briefly then flat lined for awhile.
In example number 2, Apple announced the iPhone 4 on June 7, 2010. Again it sold off just after the announcement, had a little bounce and settled lower again.
In both these scenarios, if you bought the stock in the 3 months or so leading up to a product announcement and then sold just before the launch, you would see a 15-20% return.
So if the stock is so predictable and Apple’s products are so good, why did I sell? The answer is risk. Apple has exceeded expectations for several years and the stock is priced for perfection. Everything has been going so well for the company that if they slip up, the consequences could be dire. Therefore I decided to sell half my shares to take profits and reduce my risk.
On the technical side, there was a bearish MACD crossover yesterday which typically signals a drop in the price of the stock. This subject is best left to a future post.
Could the stock go higher? Absolutely, but sometimes it’s best to take your money and run!
I have owned Apple since April 20th, 2011 when I bought it at $344.35. My sell order went through yesterday at around $667 for an approximate capital gain of 93.5%. Don’t think I’m going to buy a car or go out and spend lavishly, my investment in the company was modest!
Whenever I buy or sell anything I always consider the tax consequences. With a 93.5% capital gain, taxes payable could be substantial. To offset the gain I have a little bit of capital loss carryover from last year which I can use this year. I also have an unrealized loss in Atmel that I could utilize this year if I need to. I didn’t purchase Apple in my TFSA.
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Also, since I left my job earlier this year to travel for an extended period of time my earned income this year is quite low. When it comes to tax time my income tax rate will be much lower than it was when I worked all of last year.
I will be watching news on the company and its charts carefully in the coming months. If the stock sells off a bit I might consider buying again at lower levels. I still have half my shares so I’m still in the game . I’m not going to do anything with the proceeds of the sale yet, I’m keeping the cash for now and will wait for the right opportunity.
Hope the new iPhone is worth the hype!
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