When AAPL was midway through its unstoppable ascent this spring (going from 400 to 644 in less than 4 months), the chart comparing GOOG in the 2004-2008 period to AAPL in the current bull market started making the rounds. Let’s revisit that chart today:
The chart shows GOOG’s (red line) stock from its IPO in 2004 to Apr 2008, an approx 4 year period that saw it go from 75 to 700, compared to AAPL’s (green line) stock from the start of 2009 to today, an almost 4 year period that saw its stock go from 75 to 700.
Certainly, the magnitude of the gains were similar. Will the subsequent decline be similar?
One important aspect of GOOG’s rise and fall in 2007 was the speed of its ascent and descent. GOOG went from 500 to 700 and back to 500 in just a few months. In contrast, AAPL rose from 400 to 600 quite quickly, but then re-charged for a few months this summer before making a move to 700. As a result, I don’t expect its descent to be quite as rapid as GOOG.
Now, I can already hear people yelling at me that AAPL is a 10 P/E company while GOOG was 50 P/E. But psychology is psychology. Markets move based on emotions, and I am quite sure that human nature has not evolved much in the past 5 years. There are strong fundamental arguments for AAPL, but the psychology was clearly too euphoric a few months ago.
We seem close to a time when AAPL psychology will be too pessimistic. But while I am confident that we are close in time, I am much less confident about the level where the bounce occurs. Just as psychology can lead markets astray on the upside, it is even more prone to do that on the downside.