Winds In The Face Of Apple Investors

| Apple Investor

Millions of people have had their lives profoundly affected by Apple and its products over the past 30 odd years. Steve Jobs’ vision, “To Move the Human Race Forward,” has been and continues to be realized, and it manifests itself in so many things we do, say and think. However, few people understand the nature of that vision, and how it can incite both ringing joy and deep disappointment, than the Apple Investor.

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Most of us are perfectly happy with Apple. We have embraced the vision and become faithful and loyal customers. And for the rest of us, the occasional misstep, like Power Macs or Hockey puck mouses, can be overlooked. But investors of Apple can easily become conflicted, between their belief in the philosophy, and the performance of the stock. At times the chasm between the two seems infinite.

If you own Apple stock, you know what I mean. Many of you have made fortunes through long term investment, and your gains are so great that even a 40 percent drop in stock value can be tolerated. Your faith and immense brokerage account are comfort enough. But some long term investors, perhaps the ones who got in at higher prices, have had their faith tested. And with Steve Jobs gone and a dearth of new products over the past two years, your anxiety is building and wearing at your patience.

To compound matters, there are the pundits and brokerage analysts painting a doom and gloom future for the iMaker. The irony is most of these so-called pundits—who have unnatural powers to influence stock price—are not even users of Apple products. They are little more than drive-by, Blackberry-carrying Windows-using, big-company badged antagonists. The antithesis of the typical Apple customer. They think Apple is an anomaly, and that their analysis can prove that. They are continually dismayed when Apple proves them wrong, but this just incites them to do more harm.

Analysts are only half the army the Apple Investor must fight, there’s also the huge hedge funds, and index funds that were, and still are, overloaded with Apple stock. These behemoths control the vast majority of shares, and they are tasked with one thing, to turn a profit. To them, while Apple stock was ascending, it was a free ride to great wealth and bonuses.

As soon as things looked a little dim, however, they jumped ship, initiating a steep correction. This sentiment was also fueled by the drive-by analysts, and a bit by Apple’s indifference to the stock market while it focused more on long range goals around products and services.

The dirty little secret many people don’t understand is that most of these analysts and fund managers often have the same boss, the investment bank or broker. The analysts are part of the advisory service in the brokerage. Oh, sure, they’ll say the advisory service is separated by legalese and organizational walls to protect the customer, but think about it.

A broker makes money by handling transactions, the more stock sold, the more money they make. They really don’t care if the customer’s account goes up or down, so long as the customer trades with them. And analysts are the perfect vehicle for inciting controversy, which induces volatility, volatility is a way to measure stock price movement. So, from the broker’s point of view, the more volatility, the more profit they make. It’s insidious.

So, what does this all mean for the Apple Investor? It means you must separate yourself from the investment you have in Apple stock, from the enjoyment and productivity you get from Apple products and services. You must come to grips with the reality that there are people out there who understand how easy it is to move a big stock like Apple, especially when you combine the greed of financiers with the cultural upheaval a great company like Apple can promote.

Well, let me start this virgin column with TMO, by expressing the faith I have in Apple; this is a $1600 stock if there ever was one. The strong move off the bottom this past week is just the beginning of a historic run, in my opinion. You won’t hear that from even the most bullish analyst out there, but I exclaimed that prediction in the lion’s den, also known as TheStreet.com, and was ridiculed by their chief protagonist for it. In that prediction I said the bottom would be 390, and so far it would seem that call will stick, barring a natural or Fed-induced disaster.

There’s going to be plenty of head winds in the course of reaching $1600, and it will take a while. I figure mid to late 2015. My initial target is $1404 for the end of 2014 to mid 2015. Apple is on the verge of a another revolution in the market. Will it be the iTV or wearable devices? I don’t know. I do know, that we will be fighting the analysts, fund managers, and copycat companies like Samsung, and online financial rags turned shills, all along the way. No one ever said moving the human race forward would be easy.

Image courtesy of Shutterstock.

Comments

Lee Dronick

Thank you for the info and I look forward to your future articles.

Steve

“Ernie is a former hedge fund manager and current futures trader.”

...aaaaand why would he make this stuff up? wink

John Dingler, artist

Hi Earnie,
You told us what you do, so I suspect that you engaged in selling/bundling so-called “exotic derivatives” which are responsible for tanking the deregulated US economy, this, thanks to the repeal of in favor of self-regulation. Investment bankers: “Trust us. We can self-regulate. Only the dirty masses need regulation.” Self-regulation did not work for the 99%, only for the 1% who are now getting wealthier and wealthier, but off of what? Are they producing any products of benefit to society? No. That small wealthy segment is responsible for 20% of the US’s 15 trillion GDP which is in banking. That’s a huge sum of not producing beneficial product, but is mere transfer of money upward from the 99% to the 1%.

At least you are a devoted Mac user, a plus. While I am too, I look at the Apple corporation askance; It rather borrowed low interest money to sell to investors rather than bring American money from overseas tax havens so that it could, as it should, pay taxes to support US infrastructure which is uses more than it currently pays for its upkeep.

AdamC

Kind of reminded me of Goldman Sachs shorting the CDOs at the same time they are promoting it.

Those who didn’t learned from history will keep on repeating it.

Apple is the only company which experienced near death and no other has.

And which company has a stronger will and better prepared to survive the one that experienced near death of the one that never face it before?

Ernie Varitimos

What’s with the jaded views? I am not some evil hedge fund master. I ran a small private investment fund based on hedging strategies, that’s it. Get your heads out of the sand and address the points of the article. If you took the time to do that then you would realize I’m criticizing the brokerages and their evil ways. If this is the way you plan on advancing the cause, then we have lost.

wab95

Hello Ernie:

I enjoyed your insightful analysis, and look forward to reading more. It reminds me of discussions with acquaintances of mine who work for brokerage firms (as well as my own broker) in trying to come to grips with what’s happening to Apple stock and why. I have no doubt that there are guerrilla analysts out there whose aim is to move the volatility needle; indeed, as I understand it, the distinction between some of the analysts/bloggers and brokerage houses are, you’ve indicated, blurred, and no small amount of self-interest is being served; but it’s good to hear this from someone who truly knows the business.

My personal view is that, for the small investor, Apple stock is best as a long investment, not for the feint of heart, and one best kept in the cellar until appropriately aged.

Again, welcome to TMO. Looking forward to your future posts.

skipaq

Welcome, Ernie. Don’t let the negative remarks of some with a twisted political agenda get under your skin.

On the subject of volatility, I don’t know of a stock that fluctuates more than Apple’s. These swings often would represent 25-50% swings in share price. Fun trading when the price was well under $50 per share. Then came the iMac to iPod revolution and the stock split twice. More fun!

I thought the stock would settle down. It didn’t. As the price kept climbing with some big fluctuations; I thought it was beginning to moderate. Then we get the performance of the last several months. Take a look at the peaks and valleys. Those are some big swings of hundreds per share. There is no way to account for this based on Apple’s financials.

Seriously! Can you point to another company that loses over $300 in share price while making record profits? Recent news reports some large investments in Apple. Couple that with Apple’s aggressive buy back and this stock seems to be getting primed for a climb. There is going to be some huge profit taking on this stock once again.

Paul Goodwin

Good summary of some of the pain I feel. The section on the insidious ones was a good one. I’m a long haul little guy that am still happy because (as you said), I’m still ahead. I was stunned when in 2012 the stock was rising at the phenomenal rate that it did, knowing a correction was due. I was also stunned with how large a correction it was, and how long it’s been correcting. Wall St is a bizarre place where logic, reason, formulas and history have little meaning. And the stock buyers are obviously are over emotional, swayed too easily by the dreaded pundits you mention (the slugs of the world).

Your $1600/share by mid-late 2015 seems optimistic. That would mean the stock would have to go up by about $40 per month. When Apple was on a steady slope from 2009-2011, it went up about $10 per month. Of course, that was history and what’s that got to do with anything on Wall St.

Thanks for the article. I do love your optimism, and I hope you’re right. Me and my little 17 share portfolio would love it.

aardman

I think a lot of the volatility is from parachute investors who got caught up in the (self-induced) iPhone-iPad euphoria and because of a basic ignorance of Apple’s history thought that a new major product introduction every three years is the normal pace for Apple.  The embarrassing fact for some of these excitable amateurs was that they are so-called ‘professional’ investors who then dumped the stock partly out of spite.  Emotion got them into the stock, emotion got them out of it.  Things will settled down, Apple will introduce new market-pioneering products and we long term AAPL holders will go merrily along our way.

eddie

Nice article.
I think just the same about some pundits!

Don Bruno

What a great read….I am with you all the way and couldn’t agree more with your take on the investment community. They didn’t bad mouth Apple on the way up when they were making money. I am so sick and tired of reading all the made up bad news and bad rumors .....they are all quiet this week though…wonder why. Nice column….great work and keep it going.

Marla Hayes

Hello Ernie,

Aapl is such a great, liquid trading vehicle for the options market.. Not many individual investors have the account size to buy and hold lots of shares outright based on its fundamental investment prospects, even with the recent crash in price.  There were a confluence of factors causing the crash in price, including margin calls ( or forced liquidation by the clearing houses and brokers at the lows).  Whether Aapl can maintain Steve Jobs’ legacy of bringing more life-changing innovative products ( or at least one more) in the near future will likely determine if Apple can become a higher flier again.

Ernie Varitimos

Hi Marla,

Apple has traditionally introduced a revolutionary product on a three year cycle, so they are due this year to continue that trend. I believe we’ll see the roadmap at WWDC, then incremental releases in the fall and winter of this year.

I think part of that release will be an expansion of the iPhone product line, much in the same manner as the iPod line. It will consist of color iPhones, an expanded core phone, and big screen phones. I wrote about it on my AppleInvestor blog here:

http://bit.ly/iphone-2013

I also think iOS 7 will be an integral player in this new lineup, as well as a new product category that will be either or both wearable products and an Apple TV.

As far as the stock goes, Tim Cook is in the process of transforming Apple from a pure growth company to more of a value company through a repurchase program, increased dividends and the introduction of Apple bonds.This will make both the individual investor and fund manager much happier.

All taken, I believe Apple is in a better position than any other company, even fast and furious competitors like Samsung, to continue to lead us into the future, and “Advance the Human Race.”

BAHRAM

Hi Ernie,
Great article. Enjoyed it a lot. Keep on refreshing us on your views.
You are great, and the one who gives me hope on my stake in Apple.

aardman

Apple II, 1979
MacIntosh, 1984
Newton. 1993
iPod. 2001
iPhone, 2007
iPad, 2010

Mr. Ernie, I didn’t know you also buy into this myth that “Apple traditionally comes up with a revolutionary new product on a three year cycle.”

Ernie Varitimos

Actually Mr. Aardman, it was first mentioned to me the other day in a conversation I had with Ken Segall. He’s the one that planted the idea in my head. I figured he was the authority, who was I to question?

John Dingler, artist

Hi Earnie,
Funny, I can’t believe that you are appealing to a higher authority—in this case Ken Segall—to bolster your mistaken proposition that Apple revolutionizes stuff every three yrs.; An “Appeal to a Higher Authority” is another one of those accepted logical fallacies…easy to fall into, and it convinces the general reader, especially the sympathetic reader, as most of us here are, so those people often accept that the blame for the mistake belongs to the other person, not to the one making the fallacious argument…otherwise I appreciate your rigorous approach to writing style as well as your insights.

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