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Buy Low; Sell High - Why I sold my AAPL stock
In the interest of full disclosure and possibly later as an illustration of the folly of microtrend trading, I'm revealing that I sold my Apple stock last Thursday. I make no claim of any special knowledge about Apple's future, nor do I offer advice on how others should play this stock. First a little digression I trade stocks for a living. I have little pretensions about being a so-called "rational investor." After all, buying a stock and selling a few months to a few years later is not the definition of an investor nor is the stock market rational. As a trader, I exist on a diet of either crow or pheasant depending on which way tomorrow's wind may blow the good ship Nasdaq. There has never been a better time to be a stock and options trader and, while it remains to be seen, there hasn't been a less opportune moment to be a new investor since mid-1987. For instance, would you "invest" in (i.e. buy and forget) a blue chip Internet stock like AOL or Amazon? Buying a stock with a PE ratio of 100+ for a long-term hold investment is like playing the roulette tables in Vegas - you will lose. What goes up must come down. My goal is to maximize my capital gains in today's choppy sideways moving market environment by riding the waves of rotation and volatility. The tech stocks have soared so high they may find the heat of reality melts their waxen wings with any more altitude. So they percolate up and down, often forming a trading range skewed according to each stock's unique set of current events. The Nasdaq is up over 80% in the last 12 months. Almost every internal market indicator screams "overbought, over valued." Peter Anderson, chief investment officer at American Express Financial Advisors, told the Wall Street Journal last week that the tech stocks, particularly Internet stocks, are acting crazy. "We are in an area where valuations aren't even rational," he said. "This is a bubble. We are in the midst of a bubble. It will burst someday." "Someday" is the time frame we're looking at. No serious fright to beat the tech stocks back in line with so-called rational valuations is on the horizon. Enough new money pours into the technology stocks every day to allow traders to take profit and cycle out of one stock and into the next hot mover. Even rising interest rates seems to be largely factored into the equation and are of little help in moderating the tech stock rally. Only a really harsh new fear will be able to push back the bulls. Adding fuel to the fire, the high tech sector is returning year over year growth of 22% instead of the modest 11% forecast by cautious analysts who had bogus Y2K fears on the brain till the very last moment. The fed flooded the markets with the largest increase ever in the M3 money supply in November-December and that had the opposite effect of raising the interest rate. The markets soared. Last but not least, our economy is red hot with few signs of peaking, boding well for US corporate profits in 2000. Blue skies rule. The Nasdaq wants to correct itself but can't right now, so look for huge volatility and a trading range. If you're a wannabe long-term hold investor, wait a few months for the big Kahuna correction to lower valuations. It will come with the right catalyst. If you're a stock trader, you're in pig heaven. This is as good as it gets. Buy low; sell high. Use stop loss and limit orders. Cut back on your margin and buckle your seat belt. Why I Sold Apple, the lack of Insane Greatness I hope to accumulate AAPL shares as the price drifts towards support in the $100 range. I haven't turned bear on Apple - just a bit disenchanted with the latest developments in Cupertino and stunned by the technical weakness AAPL showed by dropping to $89 on January 12th. Ultimately, Apple has the potential to soar another 100 points this year if the right decisions are made in the boardroom, but it won't come without ups and downs. Our beloved Apple is merely another corporation like any other with weaknesses and strengths. As an AAPL shareholder it's wise to lay aside the Mac Jedi robes in order to evaluate Apple objectively as a business. Apple's earnings were obviously very, very good and the sales outlook for 2000 is quite strong. However, I'm betting the stock won't make new highs before Apple ventures an announcement about hardware updates, or has more to say about its marketing strategy and alliances. Investors look towards the future. Few corporations are allowed to rest on their laurels by shareholders and Apple's laurels are already wilting from the heat of Cupertino's hubris. Apple's Internet strategy is too little, too late. Strategy is too strong a word for Apple's befuddled and timid approach to the Internet. Sure, iTools is cool. Especially, the iDisk which is an easy to use WWW version of filesharing/FTP. Apple's e-mail and other Internet tools have an elegant interface with none of the ugly and slow banner ads you see at Hotmail, iDrive or Excite mail. However, 'insanely great' hardly describes Apple's Internet offerings. It's available elsewhere in many forms, it breaks no new ground and it's decidedly mind numbingly dull in a sanitized sort of way. The line up of features seems almost arbitrary. Where's the chat rooms on body piercing or appz cracking? Where are the personals? The MP3s? New media technologies attract and hold first time users' attentions long enough to get over the learning curve by being sexy, dangerous or both. That's how Yahoo, Excite and AOL got where they are today. The Internet without the edginess is like TV without cable. Of course, that's just my opinion. Worse - iTools is heretically proprietary in nature. You can only use iTools if you have a Mac and that Mac must be running OS 9. This is incredibly out of touch with the prevailing culture of open access on the Internet. Apple doesn't get it and they appear isolated and out-of-touch with the strongest trend of the day - the free flow of information across multiple platforms. Apple is growing in part because the Internet is platform nonspecific, thus giving minority systems like the Mac OS the freedom to compete on a level playing field with Windows. iTools violates the most basic premise and spirit of the Internet by being exclusionary. It may woo newbies, but the immeasurable mind share loss among the Internet cognoscenti will more than offset any success. I can't say enough about this because it is so important that Apple grok what the Internet is about and how it will make or break the Mac platform. Fred Anderson, Apple's CFO, is famous for the insensitivity he showed towards Mac users when he raised G4 prices while lowering the specs last year to create a fiasco that ultimately Apple had to retract. Now with the same stunning myopia he believes that iTools will help sell more Mac OS upgrades because it is only works with OS 9. Groan. iTools illustrates to the Mac faithful that Apple is no longer a crusade, it's just a business here to maximize profits often at the expense of the Mac user population. The young lions that want to fight for a cause are emigrating to the open source movement and Linux in droves. iTools hints at the inconceivable concept that our visionary leader, Steve Jobs, has little new insight into the coming age of networks - his vision doesn't extend past the desktop or the hardware. He has nothing nearly as original as the introduction of the PC or GUI to offer the new millennium. iTools proves to the open source community that Apple is committed to the old school of proprietary systems and that Apple doesn't understand, nor is preparing for the day, when they will have to compete in a landscape of free operating systems, software and ubiquitous network access. Apple's Internet strategy to date is the biggest strategic error since the Newton got Steved. That's what Web savvy shareholders were signaling Apple when the stock nose-dived to $89 after Mac World. Steve Jobs: The Ten Million Option Man Steve's compensation package approved by the Apple Board of Directors seems at first glance a healthy sign that Mr. Jobs is finally playing by the rules of the corporate world and settling into his role as permanent CEO. We expect cult leaders and the Pope to lead mighty organizations for free, not executives of major US corporations. It was actually difficult for many reasonable people to get past the pretentiousness of Steve's $1 a year salary. And everyone agrees that Steve Jobs, Apple's founder and savior, deserves every penny of the compensation package. Without Steve there would be no Apple. Ironically, now we have the opposite problem: Steve's compensation is so big that it eclipses much of last year's earnings. The Los Angeles Times called it the most generous compensation package in business history. The 10 million shares in options granted represent about 6.2 percent of all outstanding Apple shares. According to most corporate compensation consultants, less than half that number would have been more than sufficient to make the point that Steve is Apple's most valuable player. So why would the board make an ostentatious statement like giving Apple's CEO the world's largest stock option package? Was Steve about to bail on Apple and it took this incredibly large sum to make him stay? The board says no, they just offer the compensation package out of the largesse of their hearts. Does Apple's board believe without Steve the company's equity turns to worthless paper? Would Apple's business flounder leading to a hostile takeover and dismemberment by a larger rival? Is the Apple team a gaggle of buffoons without the guidance of Steve the Great? This not so subtly implied lack of confidence in the ability of the other 9,500 employees of Apple to make the company work without Steve's supervision can't be good for company or shareholder morale. Steve claims he builds his team out of only the best and the brightest, but you have to wonder - would a young visionary Steve Jobs type really apply for a job at Apple in 2000? Or would he bust out with his own Internet start-up based on the open source movement and the Internet's cross-platform powers? What if Atlas Shrugs? Steve must cast a long shadow over the inner workings of Apple. I wonder how easy it is to innovate under the master's watchful eye. Much of creativity is really the freedom to play and make mistakes. Maybe that's the problem with Apple Internet offerings - the mega-force of Steve's larger-than-life stature intimidates beyond-the-box thinkers. There is more than meets the eye going on in Cupertino. Just what are Apple's real intentions? Why is Apple's price to book ratio so low? Why is Apple hoarding cash? Why is Apple squandering their technological and design lead by maintaining foolish cutbacks in research and development? Did the board issue Steve 10 million stock options in order to give him a major stake in Apple so that he could have real clout in negotiating a corporate merger? Personally, I have a problem "investing" in empires supported on the backs of Atlas-like visionaries. Alexander the Great was a strategic innovator who built the world's largest empire during his short life. Although Alexander's heroic energy spread classical Greek art and philosophy across the middle east forever changing the course of history, his empire, his organization, didn't survive a day beyond his death. Apple's fate is similarly linked to Steve's emotional interest and physical health. Like Alexander, Steve has sown far and wide a striking paradigm for the user interface between human and machine, but his organization, as it stands now, is not likely to survive his moving on. Your comments are welcomed. |