STAMPEDE! Translates as Opportunity in This Market

Charlie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The recent plunge, maybe panic in Apple (NASDAQ: AAPL) gave me a window to the psychology of this market -- I hope.

Apple is not a normal investment or even curiosity for me. I don't like Apple, I don't use their products and I am not a consumer products or retail technology investor. Furthermore, I ought to be selling equities not buying, so I violated several of my personal cardinal rules to jump in for a pinch of Apple near its 52-week low.  As a test case for my psychology theory of market watching, with skin in the game forcing my attention, Apple today is perfect and priceless!  

I do occasionally follow what's up with Apple vicariously. I admit to being mildly envious and occasionally bemused given the emotion invested in Apple and the profits reaped. But as a disciplined and focused long-term investor, on a tear to reduce equity exposure and single-stock risk in a rising market, I resisted the temptation to stray until now. This was too good to pass up, a single stock, widely held, where I have no emotional attachment at all -- if anything I have a minor avoidance issue. This gives me a generally pristine experiment to test a psychology driven, P/E validated (about 10), yield qualified (about 2.4%) approach to our less than compelling economic environment.

I hope to apply the lessons of this experiment to other stocks of much greater interest to me than Apple, like 3D Systems (NYSE: DDD), Power-One (NASDAQ: PWER.DL) and ​Intel (NASDAQ: INTC).  I already own Intel and Power-One on the strength of their past performance, current investment plans, P/E and out-of-favor psychology.

I would like to own 3D on a similar basis but the psychology of the moment has them at an astronomical P/E (100+) and so I am waiting and watching for an opportunity that fits my agenda. The revolutionary and disruptive nature of 3D's business fits that agenda, while its foray into retail consumer markets does not. Lack of long-term track record and crazy P/E seals the deal for me ... I will wait. Wait for what? Well, either an out of favor panic, or a good cry when it doesn't appear and 3D sails on into the sunset of good returns and excellent earnings.

I tend to like suppliers like Intel and Power-One who press the limits of key technology. While they reside in different spaces, a diversity I like in my portfolio, they share a strategy for pushing the limits of current technology, even when they don't need to -- in Intel's case with computing power per square, uh micron, and Power-One (single digit P/E) in modularizing and shrinking inverters for solar cells. 

I'm not much interested in end solution generators like their customers, who can change quickly. I've seen much made of the death of the PC sinking Intel's ship, and I think those who believe this are missing the boat (ha). Intel sells computing power and PCs are simply the method of choice to deliver our insatiable demand for computation over the past decade or so.

It shouldn't be surprising, 60-odd% of Intel's business is to PC building customers. That does not wed Intel's fate to the PC business any more than selling steel to railroads made steel companies victims of a declining rail business -- they found other customers, even MORE profitable and diverse than railroads.  I wouldn't want to be the specialty chip maker that gets in the way of the next-generation tiny, powerful and CHEAP chip Intel will be making on larger substrates with smaller features, pressing Moores law yet again.

This sort of thinking and experiment is compelling to me because I view the investment environment going forward from here as risky, messy and generally fraught with unexpected danger from the Fed's arbitrary policy actions. I am considering defensing myself not with bonds (awful investments today) -- the traditional approach -- but with specific short-term low-price buys of equities. Those are tough to find in this rising market, and it only seems to make sense in the wake of a stampede, or an out of favor stable value play like Intel, or Power-One. 

SkepikI has positions in Apple, Intel, and PowerOne. The Motley Fool recommends 3D Systems, Apple, and Intel. The Motley Fool owns shares of 3D Systems, Apple, Intel, and Power-One and has the following options: Short Jan 2014 $55 Calls on 3D Systems and Short Jan 2014 $30 Puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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