It seems like only recently that media pundits were writing off Apple (NASDAQ:AAPL) stock, sometimes, you invest in an outstanding stock. Sometimes, you invest in a great company. And sometimes, as the late Charlie Munger would have said, you do both.
For Munger, that was Costco (NASDAQ:COST). He loved the company and served on its board from 1997 until his death in November. I suspect Munger felt the same about Apple, Berkshire Hathaway’s (NYSE:BRK.B) largest holding—two great companies with excellent long-term performance. I believe you can profit from Apple’s volatility. Even great companies sometimes go through tough times.
Profit from Downturns
Investors have learned the hard way over the years that market timing rarely works. It’s hard to know where the bottom or the top is. Even technical analysts would agree it’s not a precise science.
However, I went back to the beginning of 2019 and measured the monthly performance of Apple stock over the next 60 months through Dec. 13.
Here’s what I found.
| Months Up | Months Down | Months Up 5%-10% | Months Up 10%+ | Months Down5%-10% | Months Down 10%+ |
| 38 | 22 | 16 | 14 | 10 | 5 |
The Virginia Retirement System studied the annual returns of U.S. stocks on the S&P 500 between 1926 and 2014. It found positive returns in 73% of the years compared to 27% for negative returns. The positive years generated an average annual return of 21.47%, while the negative years had an average return of -14.29%.
Over the past 60 months, there were positive monthly returns for Apple stock 38 times, or 63.3% of the time. They are not identical returns to the study above, but are close enough. The average of the 38 years is 9.7%. The average of the down years is -6.61%. again, not identical, but close enough.
What’s the Play?
Okay, let’s say you buy $1,000 of Apple stock tomorrow through one of the online brokers that sells fractional shares. You then commit to putting aside cash for future buys at the end of the month when the stock delivers a negative return. Don’t bother with the months where the return is less than -5 %.
That leaves you with 15 purchases over 60 months.
So, in the months where Apple lost between 5-10%, on the first business day of the next month, put $50 (5% of original purchase) toward buying Apple stock. In the months where it’s down 10% or more, put $100 (10% of initial investment) toward purchasing stock.
Based on the past 60 months, you would have finished with a book value of $2,000 [$1,000 original investment + 10*$50 + 5*$100].
I know what you’re thinking: Why don’t I buy $16.67 Apple stock every month [$1,000 / 60 months)?
You could do that. My guess is you’ll get more bang for your buck by buying on the down months only. However, I promise to calculate and report how dollar-cost averaging works against my idea in a future article.
Even great stocks like Apple get beat up a little.
The Bottom Line on Apple Stock
All the media outlets were running out their stories about Apple hitting an all-time high on Dec. 13. The share price closed at $197.96, valuing Apple’s stock at $3.08 trillion, making it the world’s most valuable company.
Fortune pointed out Apple’s market cap was just $100 billion less than the French stock market. That includes LVMH (OTCMKTS:LVMUY), easily one of my favorite global companies.
Someone once said the best time to buy stock is when you have the money. That goes double for Apple. If it’s good enough for Warren Buffett, it should be good for the rest of us.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
