Hold onto your hats!

“ASX sheds $30b in one hour”Fairfax
“‘Hard Landing’ could smash banks”The Australian
“Dow plunges more than 400 points as Apple leads tech rout” – CNBC

As is often the case, the Australian market followed US markets lower on Tuesday morning.

Why?

As is often the case, no-one knows for sure.

But here’s what I do know:

  • It’s rare for a proper business to lose more than 1% of its true value in one day
  • It’s extremely common for the perception of its value to change

Remember, I’m talking about the difference between price and value. Share prices don’t tell you what a company is ‘worth’ — just like realestate.com doesn’t tell you how much you should pay for a new house. There’s a difference between price and value, and long-term investors know which one is important.

Take the full tutorial: The Difference Between Price & Value.

Use It To Your Advantage

It’s the mismatch between prices and valuation that offer long-term sharemarket investors the opportunity to make outsized returns.

Volatility is the price of admission or as Buffett said, be greedy when others are fearful.

Let’s take a specific example…

Between yesterday and today, I do not believe Apple (a company I own in my portfolio) has had a meaningful change to its valuation. Apple’s stock price fell 5% overnight.

What has changed, however, is the perception of its value:

“Apple hit by fresh ‘peak iPhone’ fears after suppliers cut outlook” – Financial Times

But here’s the rub, a shrewd long-term investor would know that Apple is purposefully growing outside of iPhones.

During its most recent conference call, Apple CEO Tim Cook said its super-sticky ‘Services’ revenue (think: iCloud, the App Store and iTunes) will be a priority going forward. Then there’s the Watch, homepod, cars and more. Oh, and it has $US200 billion of cash.

My belief has long been that Apple’s iPhones, iMacs and MacBooks get users in the door, but its the iOS ecosystem and the ever-expanding sticky product suite that keep them in. My view did not change overnight.

Cheers to our financial futures!
Owen Raszkiewicz

At the time of publishing this article, Owen Raszkiewicz owns shares of Apple Inc. This article contains general financial advice only. Please see The Rask Group’s full disclaimer below. 

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