$AAPL: Price Moves First, Fundamentals Follow

I just got off the phone with a good friend who I know is an investor and a financial advisor, not a trader. He’s in denial about what’s happening with Apple. He’s in love with its products, spiritually identifies with Steve Jobs, and he thinks that what everyone is feeling about Apple will not change or go away. Although he had TREMENDOUS difficulty expressing their edge to me in a clear and concise manner, he has what I call “blind conviction”…much to the detriment of his investor clients. He thinks it’s intellectual…

He has a few hundred dollars of unrealized capital gains per share, so he uses the flaccid excuse of “I don’t want to sell before the year-end because I’ll give my clients a tax bill.” I reminded him that that manner of thinking wiped out hundreds of millions of unrealized capital gains taxes between March 10, 2000 and December 31, 2000. Coincidentally, he and his clients got killed in 2000 when the tech stocks crashed.

When I wear my coaching and mentoring hat, I see for a fact, that the most enduring illnesses of the marketplace is how investors and traders can intellectualize their actions and inactions without fully understanding that it is their emotions that are controlling their behavior. Something magical happens and the feeling of being so correct (intellectual, but random) overshadows and semblance of sensibility to do the first thing that both investors and traders must do: protect capital.

When I mention this, he tells me “I’m diversified” in such a matter-of-fact tone that if you overheard the conversation, you’d think he invented the concept. I told him that diversification is risk reduction, not risk management. He’s confused the two.

He does not want to hear that the Samsung Galaxy S III is a better device that the iPhone 5, or certainly more popular. He doesn’t want to hear that the Nexus 7 has better features than the iPad Mini. It’s as if he’s possessed, and this type of blind faith can a) get you killed; and, b) vaporize cash faster than Jon Corzine did at MF Global.

It utterly stops me in my tracks that individuals can be so disjointed within themselves. That their intellectual mind can be so dislocated from their emotional mind.

I think to myself that they must have some type of self-hatred…to do all this work…to take the risk of putting the trade on…and then be lucky enough to get the gains they’d hoped for (it’s usually random)…to enjoy the moments of glory…but to not acknowledge that all big moves end and protect your capital.

Traders and investors alike need to find that place — the protective stop price — where they will be financially and emotionally stable in offsetting their positions and in doing so protect their capital. If you don’t have that “place” I think you are a reckless joyrider.

PTJ is known for saying “prices move first and the fundamentals follow.” That may very well be the case with Apple right now.