How Should Investors Analyze a Stock’s All-Time High?

In this segment of “The Morning Show” on Motley Fool Live, recorded on Dec. 13, Fool Senior Analyst Jim Gillies, Advisor Jim Mueller, and Director of Small Cap Research Bill Mann discuss whether a stock’s all-time high should be a consideration for investors.

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Jim Gillies: Jason T. asks, how much should a stock’s all-time high price be used as a metric to make decisions? With the most recent fall in tech stocks, I see percent off of all-time highs often quoted on Twitter and Motley Fool shows. Isn’t this just another form of price anchoring? Shouldn’t the question be, where can it go from today?

My opinion upfront, Jason, you are exactly right. It is a form of price anchoring. I’m gonna get this quick and then you guys can debate and tell me why I’m wrong. The only questions are for any stock at any point in time. What is this worth and why? All-time-high doesn’t play into that. Opinions?

Bill Mann: Two votes.

Gillies: Two votes [LAUGHTER]. Okay, that was easy.

Jim Mueller: Peter Lynch. I think it was One up on Wall Street talks about the fall from how far something has dropped. After it’s dropped like 50% from the all-time high or something. People buy shares because, “Oh, it’s fallen already again, can’t fall much further.” When the truth is, it can fall 100% from where it is now and does on occasion. The all-time high is just a number.

Mann: I know Jim Mueller and I have gone through and shown this before. But Apple (NASDAQ: AAPL), for example, has something on the order of 3 billion shares outstanding.

Gillies: Remember they split four for one. I think it’s closer to 15, 14.

Mann: Okay.

Gillies: Anyway, sorry.

Mueller: Give me a second, I’ll give you the number.

Gillies: It doesn’t matter.

Mann: Here’s the number that matters. The last price could be set on a trade that involved one share. The all-time high is not 15 billion shares moving at once. It’s based on one share. So Jason, to that extent, I completely agree with you.

Mueller: 16.4.

Mann: Thank you. I was off by a factor of four. So five.

Gillies: But again, they split four for one in the last year.

Mann: I spiked it.

Gillies: You’re dealing with pre-split information. That’s all.

Mann: Most investors, if you were to ask them, take a random company in your portfolio and ask them, how high did this company go this year? They could get within a couple of percent. Did you ask them how low the share price was this year? People have no idea a lot of times. One of the reasons that I focus on all-time-high and I 100% agree with you except for this, that investing is all about pain management. Almost no one is aware of what the low-price was, but almost everyone is aware roughly of what they could have gotten if they had different knowledge.

Gillies: That’s a good point.

Mann: That’s my only reason for pointing it out.

Mueller: Here’s another point. All-time highs, people tend to be reluctant to buy because can’t go much higher, can it? See that kind of question all the time. When a well-performing company is going to set an all-time high over and over and over again during its lifetime.

Gillies: Bill mentioned Apple. They’ve had one or two all-time highs over the couple decades.

Mueller: In one of my articles talking about anchoring I ask, would you stay out of a ten-bagger on purpose just because it’s at an all-time high today? Referring to Apple. This is more like a 20 or 30 bagger now.

Mann: The answer should be, is you crazy?

Mueller: Yeah, right. [LAUGHTER]

Gillies: The other answer is you don’t have perfect foreknowledge of a ten-bagger. We looked through a glass half darkly as they say.

Mueller: Okay. They’re reluctant to buy at the all-time high because we can’t go much higher. Then watch it drop. Now they are reluctant to buy because something obviously has gone wrong. They don’t want to buy the thing. [LAUGHTER]

Gillies: We’re getting a couple of follow-ups. Good question. So I’m going to roll into those from Marjorie and for TR in a second here. I actually just recommended in Hidden Gems Canada, my most recent wreck was the stock had literally hit the all-time high that day. That’s a nice factoid. I think it hit the all-time high again the next day. That’s a nice factoid, but what is the value of the company?

Bill Mann has no position in any of the stocks mentioned. Jim Gillies owns Apple. Jim Mueller, CFA has the following options: long January 2023 $115 calls on Apple and short January 2023 $125 calls on Apple. The Motley Fool owns and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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