How Apple sellers got burned on Facebook

Pity the trader that pulled out of Apple to invest in the social-networking company.

By Benzinga May 22, 2012 4:07PM

By Ilir Shkurti, Benzinga Staff Writer

As the public downgrades Facebook (FB) from "history in the making" to cautionary tale, shares continued their second-straight daily dive, nearing the $31 level Tuesday afternoon.

Meanwhile, another high-profile stock, Apple (AAPL), was seeing quite a bit of activity. The stock had picked up steam earlier Tuesday, gaining 9.5% in the morning alone. By the afternoon, however, Apple was down more than 1% to $555.16.

Given the popular nature of the two stocks and degree of participation they have brought in the market, it is not far-fetched to assume that a sizable amount of capital has switched back and forth between the two since Friday.

Moving back in time to May 10 -- when FB was the hottest thing with a ticker -- AAPL opened near the $575 level and shed just under 8% of its value by the close of May 18, the day of Facebook's IPO.

On Monday, Apple opened at $534.50 a share and by the end of the day it had clawed back over 5%. Meanwhile, Facebook had shed 11%. Tuesday seems to be a continuation of these respective moves.

For those traders that are making the round-trip from Apple to Facebook to Apple again, their trading has proven expensive. An investor exiting 10 Apple shares at the May 18 open of $533.96 would have had gross proceeds of $5,339.60. Those proceeds would have bought 140 Facebook shares at $38 a share.

If by the end of trading session on Monday the investor had a change of heart, he or she would have exited Facebook at $34.03, for gross proceeds of $4,764.20. Entering an Apple trade at that moment would have gotten the investor just eight shares. As of the end of trading on Monday, then, the investor would have been down just under 16% in terms of capital, or 20% in terms of their Apple position.

The bright spot of such a back-and-forth shift would also have meant that the investor avoided a further 2% decline in Facebook, and captured about a 1% appreciation in Apple.

FB was heading into Tuesday's close at $31.09, down 8.6% for the day, while Apple was trading at $553.84, down 1.3% for the day. 

More from Benzinga
May 22, 2012 4:30PM
This has to be one of the stupidest articles I have ever read. If you buy a stock and it goes down, you lose money. If you sell and buy another stock that has gone up, you get less of it. Why? Because you have less money. Then, if that stock goes down, guess what? Less money! And this guy is getting paid for this.
May 22, 2012 4:22PM
Just lost all faith in the msn stockscouter.. It has FB as a strongbuy. what a joke..
May 22, 2012 4:37PM
Carrie D = a Girl with common sense!!
May 22, 2012 4:35PM
I agree - I have found Stockscouter to be worthless as an investment tool - Right now it has Chesapeake Energy as a 6 out of 10 and a hold rating but the company is clearly in trouble. Don't base your investments on this tool. MSN does have a lot of great investing information though for you to do your own research.
May 22, 2012 5:47PM
@Carrie D 
What a delight you are :). Your math logic is good, but the point is the investor above locked in the P/L when he jumped from one stock to another. Now he/she ended up 'affording" 20 percent less AAPL (8 v 10). Had he/she stayed put with AAPL, he/she would have still held 10 shares. Or, had he/she later stayed put with FB, there was yet a chance FB would climb, and this preserve his/her capital. But he/she "locked in" the FB loss and now takes his/her chance with AAPL. That is where the nominal 20% deficit in his/her affordability for AAPL (or any other stock). To generalize what article tries to get at, once you decouple your capital from a holding, there exists the possibility of the price of that holding inflating in relation to your capital's buying power. 

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