How to invest in Apple: complete guide to buying AAPL shares

Everything you need to know about buying AAPL shares, and whether you should

If you were to invest in Apple you would effectively become a joint-owner of the company and, along with all the other shareholders, you would have a say in the decisions the company makes.

[QUIZ: So you think you know Apple?]

As a reward, your investment could grow as the company enjoys successes. You will also benefit from a share in the profits of the company in the form of dividend payments every quarter.

However the value of your investment can also decline. Tying your money to the success of any company is risky business. Should you take the risk with Apple?

Should I invest in AAPL shares?

First things first: Apple's share price is incredibly volatile. Don't invest if you want to make a quick buck. And definitely don't invest if you can't afford to lose your money. We're talking about the company whose share price hit the heady heights of $700 (APS465) in September last year, only to plummet to $389.47 (APS259) this April.

To be frank, the only people who make short-term gains are the big funds who plough millions into the stock only to take it out again a few months later (more on them below). Over the long term it could be possible for normal investors to make money out of Apple stock, however.

That said, Apple shares aren't cheap. But they are cheaper right now than they were this time last year. On 28 May 2012 AAPL shares would have cost you about $560.24 (APS372) each, now a share of Apple costs $441.44 (APS293).

You should only invest in Apple if you don't mind the fact that you could lose some of your money. As with any stock market investment, you can lose as well as gain money. However, compared to the rates of interest offered by many straightforward investments right now the returns, if you are lucky, could be far higher. Just don't count on it.

Key to your decision may be that you are an Apple fan with good knowledge in the company, and an interest in Apple that means that you follow the highs and lows of the company with interest. Nobody can predict the future, but at least you have good knowledge of what happened in the past.

Beware of well-paid analysts

If you are serious about your investment you must take any reports claiming to have an insight into what Apple has up its sleeve, or claims that Apple's share price will hit $1,00, with a pinch of salt. Nobody has a crystal ball so don't believe reports that claim to be able to predict what will happen over time. It's nice that people have faith in the stock (some of the time) but they may well have ulterior motives in getting you to invest your money. As Asymco's Horace Dediu said recently: "The opinion of those who are highly paid should be treated with suspicion." Be wary of analysts who work for financial services, noted Dediu, their paychecks "are not tied to accuracy of foresight".

Unfortunately, report based on the words of these analysts and other so called experts, along with supposed "leaks" from the Far East, may cause changes to the value of the stock.

No doubt a number of investors read reports last year that suggested Apple's stock was set to climb all the way to $1,000 a share and, enticed by claims that Apple is working on new product categories, including television, decided to invest money in the company.

Similarly coverage of the decline in the value of AAPL shares will have given investors cause for concern.

The best advice is to invest for the medium to long term - five to ten years - and expect the value of the shares to fluctuate. If you invest over a longer period you're in a much better position to ride out any fluctuations in the market.

In the short term investment in Apple is a sophisticated game, with many people (many of them fund managers) with huge resources putting their money in. Just remember, you're up against the big boys and girls.

Make sure you stay informed, create a short cut to Yahoo Finance.

How do I buy Apple shares?

Shares can be bought and sold by post, telephone or online. It's incredibly easy to buy and sell shares via the internet, plus it's often the cheapest option.

Note that internet share dealing is execution only. This means that the broker carries out your instructions on what to buy and sell without giving you any advice.

It is also likely your shares will be held in a nominee account - basically the stockbroker holds them on your behalf. This means your name may not appear on the company's register - and as a result you may not receive the company's financial report and you probably won't be able to vote. Dividends will still be paid into your account however.

Your internet share dealing services might buy and sell shares in real time so you know exactly the price you are paying for your chosen shares, but it is also possible that shares are purchased at certain times of the day, so you may not be buying at the price you thought you were.

Another thing to note is that if you don't hold the share certificates, you will have to sell the shares through the broker you bought them from. You will likely be charged a fee if you swap to another firm.

You can also invest through a stockbroker. You may have to pay them commission, but it is still possible to opt for an instant access execution-only stockbroker, who won't give you advice and simply process your requested transactions.

You can also make your share transactions through a investment ISA. That way you can save APS11,520 a year, tax free.

Buying AAPL shares in the UK

If you are based in the UK there are some extra steps necessary before you can buy Apple stock. If you have never traded in US shares before, you will need to fill in the W-8BEN form. This confirms your foreign status for tax purposes.

If you are thinking of buying Apple shares get this form filled in now so that you can buy shares on the day you choose, not days later because you weren't prepared.

What does it cost to buy shares?

When you buy shares, you pay 0.5% stamp duty on top of the cost of dealing.

Any dividend income is also subject to tax. The dividend ordinary rate of 20% applies for basic rate taxpayers who earn up to APS32,010, a rate of 40% if you earn up to APS150,000 and 50% if you earn more than that, in the tax year 2013/14. When you receive dividend payments a percentage of tax has already been paid, and it will appear on your dividend voucher as a tax credit and may mean that as a basic rate taxpayer you have no further tax to pay. If on the other hand you are a higher rate taxpayer you will have an outstanding tax liability to pay when you make your tax return. There's lots of information about this here.

There's also capital gains tax to consider. If you sell your Apple share for more money than you bought it for, you're will have made a capital gain and it will be liable to tax at a rate of 18%, or 28% for higher rate tax payers. Before any tax is payable though, you have an annual tax-free allowance for Capital Gains Tax, which is APS10,900 for the 2013/14 tax year. Read more here.

An exception to these tax rules is dividends from ISAs, which are tax-free.

For bigger investors there's also a mandatory APS1 to the takeover panel (PTM) for all trades worth more than APS10,000.

Another way to save money is to dealing with electronic share certificates. They are a lot less costly than dealing in paper share certificates.

We're not investment advisors so we don't recommend any particular brokers. There is this article about investing on the MoneySavingExpert site, but note it's a bit out of date. Or look here at this comparison of UK share dealing accounts.

Why is Apple's share price so volatile?

In many instances there is absolutely no connection between the actual economic value of a business and its stock price, and in the case of Apple this is certainly true. Apple is actually criticized for having too much money in the bank. In some ways it's success has made it the target of much criticism.

Speaking of the amount of money Apple has in the bank, tempers are raging over this. Earlier this year a 'rogue' fund manager caused quite a stir when he claimed that Apple was trying to stop shareholder having a say in what it did with its money. As a result the company eventually agreed to return more of its $144.7 billion cash horde to investors. Doing so is no easy process because a lot of that cash is tied up overseas and the company will have to pay corporation tax if it returns it to the US (Apple's been in quite a lot of trouble recently over its tax practices). To avoid tax on this occasion Apple is offering new investors the chance to lend it money so that it can pay current investors back (at least that's one way of looking at it). Suffice to say Apple is getting a better rate of interest on this debt than it would have to pay the US government in tax.

This is the sort of news that should please investors, and since the bond sale at the end of April the company's share price has been on the rise.

However, it did fall back on the 15 May. Why would that be? This story is a good example of why it's the big fund managers who really control Apple's stock. There have been lots of examples of aggressive trading over the past few months but in this case it appears that short-sellers had swarmed AAPL.

This "swarming" was identified Canadian money manager and financial columnist Mal Spooner. He first noticed that short interest in Apple had swelled from 8 million shares in April 2012 to 20 million in April 2013 and likened this burst of short selling to a "swarming," a street crime where "an unsuspecting innocent bystander is attacked by several culprits at once."

Spooner highlighted that short interest in Apple also peaked between 15 April and 30 April this year, to a record 41.6 million shares. During that fortnight - on 19 April (two trading days before Apple's second quarter financial report) Apple's share price hit its lowest price in 16 months ($385.10). Those investors then made off with their gains because by 15 May (there's that date), Apple's short interest had fallen to 26 million shares. More here on Fortune.

Spooner explains: "The irony is that short-sellers borrow the stock from real shareholders (via third parties) in order to sell it on the market. After the selling pressure wreaks havoc on the stock price, the short-seller then buys shares at a much lower price, returns the 'borrowed' shares to those real shareholders and keeps the profits."

Whether you understand all this doesn't matter as much as knowing that this is the kind of thing that goes on with Apple's stock.

Another example of how big funds can control the AAPL stock. Last year Apple saw massive declines when four of the biggest hedge funds dumped billions of dollars of Apple stock. The share price plummeted and no doubt a number of investors panicked.

Why did these big investors pull out? They could have us believe that they had lost confidence in Apple. A conspiracy theorist could suggest that funds pushed billions of dollars into Apple in the Summer of 2012 and then pulled out months later when they had made sufficient short term gains.

You should always be aware that these big funds can rip money out of AAPL at any time. For example, on one Friday this January we saw what was described as a "premeditated unloading of some 800K shares (some $350 million worth) of AAPL in the last second, with the full knowledge it was shake the market."

Other suspicious AAPL activity on the NASDAQ earlier in January had coincided with the expiration of call options written last summer, and the Apple share price closed at exactly $500 that day. Coincidence?

How can you stay clear of being a victim of these big bullies? Mal Spooner's advice:

Avoid owning stocks that have become darlings. When it seems nothing at all can go wrong, it will, and when it does there's sure to be a swarming.If there's evidence of a growing short interest in a company, best not own the stock.Instruct your financial institution that your shares are not to be available for securities lending purposes.

Unfortunately Apple did become the stock market darling in 2012. Beware that while this may happen again, it isn't something you as an individual investor will have any control over.

Should I invest in Google?

We watch Google's share price with interest because to us it looks a lot like the story that played out with Apple last year is now happening with Google's shares.

Google is currently trading at $868.31. This time last year it was $588.23 (down from $641 a month earlier). GOOG has certainly been climbing steadily since AAPL began its decline. If Google is the current stock market darling, how long does it have until it has billions wiped of its market cap as fund managers swipe away their gains?

It is certainly the case that some funds have sold APPL and bought GOOG. For example, Tiger Global dumped 790,000 AAPL shares in the first quarter of 2013 and bought 300,000 Google shares, according to a Business Insider report.

Some might suggest that as it nears $900 Google might be more risky than Apple was when it hit $700. Others suggest that Google is heading to $1,000 (last April they said the same of Apple).

Incidentally, market cap is determined by multiplying the stock price of a company by the number of shares it has issued. Apple's market cap is currently $417.65 billion. Google's is $288.08 billion.

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