We all know how successful Apple has been historically.
Or do we?
We’ve heard from a number of people, including some advisors, who say that Apple will always grow.
At worst, these people say, “Apple will maintain its position as the world’s most valuable company.”
The unspoken assumption is that the stock is a “forever” hold, even if the position held is a large, concentrated one.

China Syndrome?
Recent criticism of Apple, even from left-leaning outlets like the NY Times, increases the risk for Apple. The Times says, in a 2021 article, “Apple has largely ceded control to the Chinese government.” China could be the trigger that causes Apple to lose its polish.

History of the Top Dog
But concentrated positions are dangerous, even in stocks as “stable” as Apple.
The historical data shows that even market leading companies like Apple can, and do, plummet.
Here is a short list of once-great American companies that have fallen on hard times. Most of these went bankrupt and disappeared:

• ATT
• Bell Labs (Lucent – went to zero)
• GE
• GM (Bankrupt)
• Sears (Bankrupt)
• TWA (Bankrupt)
• Pan Am (Bankrupt)
• Texaco (Bankrupt)
• Chrysler (Bankrupt)
• AIG
• Washington Mutual (Bankrupt)

Utilities Are Not Exempt
Even public utilities, once considered the ultimate “widows and orphans” stocks, are not exempt. Here’s a short list of some of the more prominent utilities that have gone bankrupt

• Pacific Gas and Electric (twice!)
• Portland Genera (Enron)
• Griddy
• Brazos Electric

Here are a few charts that show GM and GE, former industry giants, crashing to zero around 2009/2010:

Tech Stocks are Not Immune
Many advisors and clients have already felt the hit that big tech stocks have taken in the past year or so.
Netflix had a dramatic nosedive earlier this year. Facebook and Google have experienced similar plunges.
Google lost 44% of its value in 2022, and Facebook lost nearly 77% of its value in the same time period.

Even forward-thinking big tech companies are prone to periods of significant loss.

Could Apple Be Next?
While Apple has been good to its investors recently, that wasn’t always the case.
From 1998 to 2003, Apple stock price soared, just as it is doing today; then it fell just as rapidly.

And current data shows that Apple may be headed towards falling again.
Below is a graph of Apple, Facebook, and Google since 2012, when Facebook/Meta opened.

Notice that Apple, in orange, has largely followed Facebook (or META, in blue) and Google (in green) on the upward trend in 2020 and 2021.
It’s not hard to see how Apple may be just as susceptible to dropping as its contemporaries did.
Many clients feel as if Apple is “too big to fail.” But as we’ve seen with companies like GM, GE, and even recent powerhouses like Netflix, there is no such thing.

How To Get Out Before It’s Too Late
If your clients (or you!) have concentrated Apple stock positions, the safest and smartest thing to do is to diversify.
But stockholders are often reluctant to sell such positions, as they would face a huge tax hit in the event of a sale.
Luckily, there is a solution.

Sec. 664 Stock Diversification Trust
A good solution for many is a tax-exempt Sec. 664 Stock Diversification Trust.
Here’s how it works. A stock owner contributes stock to the trust. The trust then sells the stock, tax-free. The proceeds become AUM, and the advisor invests the trust assets.
If you think a Sec. 664 Stock Diversification Trust could be right for one of your client situations, please reach out to us. You can use the form on our website to schedule a meeting with us, or call our office and ask for Connor or Ryan.

You may also be interested in our weekly webinar on concentrated holdings, where we discuss the best ways to advise clients with highly concentrated stock positions. You can register for, or request a recording of, that webinar using this form on our website.