Playing musical chairs with Apollo Group
Posted
Jun 30 2009, 05:28 PM
by
James Dlugosch
Rating:
Do you remember how to play musical chairs? Set up five chairs for six people, and start the music. When the music stops, the six people race for a chair, and the last one standing is eliminated. Repeat this, removing a chair with each round, until there is only one chair and one person sitting -- and that person is the winner.
In the stock market, it seems the popularity of musical chairs is on the rise, especially with the trigger-happy institutional investor who has zero interest in being the last person standing when the music stops.
As a result, there is a tendency to sell a stock before the music stops. Do that playing the real game, and you're eliminated. But in the market there is no such elimination. In fact, those investors who sell early lock in a profit or avoid a larger loss. The penalty, though, comes when a stock is sold early and then continues to gain in value, resulting in money being left on the table.
Apollo Group (APOL) appears to be a victim of big-time players in the market guessing when the music might stop.
The stock rapidly traded higher Tuesday morning on the heels of an earnings report that exceeded Wall Street estimates.
With unemployment still on the rise, the online educator is seeing a boom in its business as students work to improve resumes in hopes of being able to find a job or trade up to a higher-income-producing job.
That's the way it works in a recessionary economy, but you wouldn't know it by following the stock. Shares are down big since APOL peaked at near $90 per share earlier this year.
Selling a stock is always tricky business, but doing so in a way similar to musical chairs tends to be more a result of emotion instead of rational thinking.
APOL appears to be a victim of big-time players in the market guessing when the music might stop. That makes sense as hopes for an economic recovery would, on the surface, be negative for those providing education services like APOL.
Of course, selling APOL down to below $60 per share makes little sense.
With most economists expecting unemployment to increase to 10% or more, there will be significant pressure on the economy. That's a lot of people yet to hit the unemployment rolls.
For APOL, there is a long time to go before the music stops.
APOL is one of five stocks investors can still trust in this environment. Get the names of four more top stocks here.
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