It used to be said Apple is the Nasdaq, the so called Apple-daq, but that simply wasn’t true for most of the stocks meteoric ride.
While Apple’s ascent was a big contributor to the Nasdaq’s stellar returns, Apple was dragging the Nasdaq up, it wasn’t mirroring the index. In many ways Apple was the senior partner.
Apple v Nasdaq 2008-2012.
This was so exacerbated that Apple’s weighting in the index has had to be hugely diluted to keep the index for thrashing around from day to day as Apple trades.
The fate of the many people who have lashed their financial wellbeing to the Cupertino goliath has had a tremendous outcome but the path has had massive ups and downs. Anyone who started with a reasonable Apple holding from for example 2002 is up 100 times and that means a $10,000 position is now worth over a million dollars. They would have need a lot of belief and nerve to stay on board for that but many have.
Everyday their wealth oscillates by just the sort of margins an index tries to avoid. The creators of an index want to have a diversified portfolio so that the performance represents a basket of stocks. That is why they are forced to rebalance when one star rises so much it begins to distort the diversification of the index.
By rebalancing Apple, the Nasdaq composite has avoided becoming the Apple-daq and now that Apple is no longer on a vertical path its relationship to the index has changed. Apple is now a high beta Nasdaq proxy.
This offers a way to trade both the Nasdaq and Apple.
Buy and hold-ers, especially those who has stuck with Apple for many years to capture great profits, will stick to their position through all market conditions. However, anyone who wants to hold Apple but wants to lower their risk, can now look to the index itself to do the job.
When the market rises Apple rises more, when the Nasdaq falls Apple drops further.
With Apple now trading like a high beta Nasdaq composite, Apple traders can hold the index in times of bear action and hold Apple during periods of bull move, while lowering the dangers of trying to market time.
Likewise Nasdaq ETF holders, can dabble with Apple in bullish times to spice up their returns without totally leaving the purple path of passive investing.
Aggressive traders can of course long Apple in good times and short the Nasdaq in bad. There is a high beta, low beta relationship there and its large enough to offer cover when times start getting rough.
Most people find it emotionally hard to play the percentage game of hedging but like most staking games, the market is often best played using a complex strategy. It’s a strategy worth paper trading the next time the market or Apple gets into trouble, because one of the other is going to be an increasingly regular event.