Taking Profits in Winning Stocks: A Closer Look

Investors are often tempted to "take profits" in stocks that have been performing well. However, according to veteran investor Howard Marks, co-chairman of Oaktree Capital Management, this approach may not always be the best strategy. Marks points out that selling shares of Apple or other top-performing stocks this year could cause investors to lag behind the main equity indexes.

In a recent memo to clients, Marks emphasized that the performance of equity indices is often dominated by a few stocks or groups of stocks. While the gains of these leaders may make them appear expensive and prompt investors to consider profit-taking, this strategy could backfire if the winners continue to outperform.

Marks specifically mentions Apple as one of the "magnificent seven" stocks from this year, including Amazon.com, Google-parent Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla. These stocks have been major contributors to the S&P 500 index's impressive 17% gain so far this year.

Deep Dive: A Focused Approach on the 'Magnificent Seven' Stocks

For investors seeking a more concentrated play on the "magnificent seven" stocks, here's an easy way to dive deeper into these exceptional performers.

Investing Strategy: Owning Fewer Losers and More Winners

Shares of the seven stocks have seen impressive growth in 2023, ranging from 36% to a staggering 209%, according to FactSet data. Howard Marks, an experienced investor, pointed out that those who didn't own any of these stocks earlier in the year would have fallen far behind. However, Marks also cautioned against a different pitfall - owning too little exposure.

Take Apple's stock as an example. It has increased almost twelve-fold since 2013, when it was priced at $15, reaching nearly $180 in recent days. Over the span of twenty years, it has grown nearly five hundred times. Marks questioned how many investors would have simply watched this incredible rise without selling any shares along the way. He also raised a valid concern about having too much exposure to a single stock. At its recent peak, Apple represented almost 8% of the S&P 500.

It is precisely for these reasons that Marks continues to advocate for his long-standing investment thesis of "owning fewer losers and more winners." His strategy revolves around selecting stocks wisely and maintaining a diversified portfolio. Three decades after Marks initially outlined this approach in his first investing memo, it still holds true.

In recent news, Apple's highly anticipated event, featuring the unveiling of the iPhone 15, is being covered live. This event promises exciting announcements and updates from the tech giant.

While big technology stocks faced challenges last year due to the Federal Reserve's aggressive rate-hiking campaigns, they remain volatile this year as bond yields rise.

As investors navigate these market dynamics, Marks' timeless advice of owning fewer losers and more winners provides valuable guidance for building a successful investment strategy.

Market Update

The benchmark 10-year Treasury yield was flat near 4.29% on Tuesday, remaining close to its multidecade high. Apple shares experienced a 1.6% decline at last check. The S&P 500 showed a decrease of 0.4%, while the Nasdaq Composite Index dropped 0.8%. Conversely, the Dow Jones Industrial Average saw a 0.2% increase.