The story of Apple stock over the past two years is a great lesson in why you pick your companies and stick with them.  Despite the fact that Apple had tremendous earnings and generates more cash than any other company, the stock price hit a large decline starting at the end of 2012 through the middle of 2013.  The reasons cited in the press were many – that they lost their mojo, Samsung and Google Android was going to replace the iPhone, that Tim Cook didn’t know how to innovate.  Despite all this, each quarter they continued to grow their top line revenue and maintain phenomenal profit margins.

Today, Samsung is reeling from razor-thin profit margins in the low-end phone market, and Android struggles with platform issues (each phone manufacturer has their own version and few users stay current with the latest software releases).  Now with a roster of new phones and mobile devices on an improved iOS, Apple continues to dominate the high-end, high-profit market.

And the stock price reflects it.  To compare Apple to Google (who had a tremendous 2013), the lesson is clear.  For 2014, Apple has posted a 33% gain versus a loss for Google.  For the past two years, Apple also beat Google, 64% versus 58%.  And over the past three years, it is Apple 110% to Google’s 73%.  Go back further and the difference widens dramatically.  Invest in Samsung during this period, and you would have lost money.

Not that investing in Google was a bad idea.  But the last thing you want to do is chase returns…. dumping Apple in the rout of 2012/2013 and switching to Google – versus just holding on – would have generated lower returns.  Timed wrong, and you could have lost money.  Add to an existing Apple position based on the fundamentals during the volatility, however, would kick up your returns dramatically.

Chasing stock returns – and buying into the hype – can be a dangerous strategy.  Instead, fundamental investing is picking your stocks based on the value the company generates – and avoiding the temptation to follow the herd.

David Matias