What makes a share price go up is the improving perception, by an increasing number of investors (especially institutional investors), of the company’s earnings power. Apple is a good example. Over time people have come to love Apple, for its witty TV ads, for its beautiful and functional stores, and for its elegant products, which have brought easy-to-use technology to the masses.
And as more individuals bought the stock, and more professionals bought the stock, it went up, and up, and up. (The gain from the 2003 low to the 2007 high was 3,090%.) But at some point, every company reaches a point of peak perception, a point where the greatest number of people love it, and the stock tops out.

Apple is not likely to collapse from here; it may well rally but there’s no longer a good reason to own the stock. Apple, which Fortune magazine named the most admired company in the US in 2008, will now slowly become less-loved.

As a result, the stock will no longer be an outperformer, despite the fact the company continues to grow sales and earnings. It’s just the sales and earnings will be growing more slowly. Apple now brings in $US32bn a year,and increased size eventually translates into slower growth.

The most important thing for an investor in growth stocks to remember is the market is always looking ahead. Yesterday’s news is worth nothing; it’s next month’s news and the news expected six months from now which matters. And the actions of the stock every day reflect all the various opinions and perceptions about the future, all the time which influences price.

And a final note – don’t discount the effect a top management person can have, Apple’s share price has fluctuated wildly on the changing fortunes of Steve Job’s health, and closer to home Infratil’s shares dipped significantly after revelations top man Lloyd Morrison was suffering leukaemia.

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