Aswath Damodaran, finance professor at New York University, has decided to trade in all his Apple stocks recently. Many don’t understand why anyone would trade Apple stocks as the company seems to be doing so well even after the company’s iconic leader, Steve Jobs, has passed. Many expect Apple’s past years of success to continue into the future, where the stock price will soar along with the company’s success. To take it a step further, analysts believe that Apple’s current stock price of $570USD is undervalued, meaning it should in fact be even higher than it is considering how well the tech giant has done and the growth potential that exists.
Domodaran has also conceded that the share price is undervalued and believes it’s very likely they will continue to climb. So everyone must be asking themselves why he would trade them all in. Domodaran explains that it’s due to the fact that Apple’s offering new dividends, which have created a different breed of investors, dividend growth investors. The NYU professor goes on to say that the inclusion of dividend growth investors means that they are “momentum investors. They’ve shifted the game.” He continues saying that when “stocks become a momentum play, intrinsic value goes out the window.” The new investors in Apple are in it to ride the wave of Apple’s momentum. This means that they can quickly get out; trading in all their stocks creating somewhat of astock exodus, as well as that Apple will be tied into taking actions to produce dividends to keep these investors. This could take the company in different directions. For all these reasons, Domodaran has said he was afraid of these new investors, which is why he sold off all those stocks.
Whether many follow the example of the NYU prof is hard to say at this point, but he has set a precedent and given the reason that he just doesn’t understand the rules of the momentum investor game. So if you’re more of a risk taker or you enjoy investing in companies that return dividends, then Apple stock might be exactly what you’re looking for. Otherwise, following in Domodaran’s step and dumping sounds like a safe decision, especially if you picked up the stocks in 1997 at $5 per share as the professor did, having already made thousands and thousands if not much more!