What is common between Microsoft’s steep rally in 2000, Petorchina’s rise in 2008 and Apple’s vertical move in 2011?
Apple made news recently when it was valued more than Microsoft and Google combined, when its market capitalisation was valued at an eye-popping $461 billion. It became the most expensive company in the world. However, what is more interesting than this little fact is the recent ‘parabolic’ rise in its share price while emerging as the largest company in the world by market capitalisation. For the uninitiated, a parabolic rise simply means sudden upwards rise in the share price that resembles a mathematical parabolic curve. What happens when the most expensive stock also records a parabolic rise?
Before we delve into Apple, we take a look at two other examples in the past. Microsoft, in 2000, was the world most valued company then, with market capitalisation of $586 billion. It came to occupy this perch with a parabolic rise in its share price during the dotcom boom. Similarly Petrochina was the world’s most valuable company in 2008, following a similar rise in its share price with crude oil prices hitting almost $150 a barrel. Now we have Apple’s parabolic rise to the top of the charts.
What do these three companies have in common? Well, according to Market Anthropology blog, there seems to be a correlation between the steep run up in the share prices of these companies, and what happened after. The steep or ‘parabolic’ rise in its share price made them the world most valuable companies. Immediately after this phenomenon, the entire market tanked and what followed was an overall bear market. In Microsoft’s case, it was the dotcom bust that followed its parabolic rise. In case of Petrochina, it was the sub-prime crisis and a crash in oil price speculation. And now we have Apple. The manner at which Apple became the most valued company is similar to the two examples above. Is Apple’s parabolic rise telling us something? Has the market peaked? We’ll get to know in a matter of time. In the meantime, investors can decide for themselves whether to sell their holdings or smell an incoming opportunity when the market falls.
The chart below, courtesy of Market Anthropology, tells the story:
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Interesting thoughts you have voiced here. Thank you! I am not an expert but it would be worthwhile to look at what the PE ratios were at such times. AAPL trades at an incredibly low 14-15 and has maintained that for a long time (& I keep wondering why others are higher).