When an equity market trend lasts for as long, is as simple, and is as consistent as the long Apple (AAPL), short the S&P 500 technology sector (XLK, SPT).  Those market participants that don’t want to put the time in to research technology, industries and the free cash flow outlook for the operations of the individual companies usually don’t react well.

It’s classic crowd psychology (the large  mainstream crowd has been a consistent winner for years until recently) vs the small group of pesky non-believers.  The non-believers refer to all their historical facts and figures and simply refuse to join the party, for some reason they can’t see what’s going on right in front of them.  No one can stand the non-believers, as they are not team players, refusing to go along with the program.   The mainstream groups’ formidable spin team gets brought out to try to discredit the non-believers.      The script is very old and the talking points get boring to me very quickly.

We’ve seen this play out before over the years (US residential real estate 2005 to 2006, etc.).  These scenarios are very interesting to study from the historical fundamentals focused investment research and valuation perspective.  I look at these market events (really societal events) as significant opportunities.

After going through many of the horror stories of the so called professional market participants caught long AAPL (and many apparently quite leveraged to the long side) the last 2 or 3 months, you wonder if supposedly smart equity market experts ever learn.

I won’t say too much about AAPL’s stock price and operational outlook in terms of fundamentals and technology evaluation on the blog (in keeping with the general policy of not talking in detail about individual companies on the blog).  In my view, the blind, no need to think about it, long AAPL and short the technology index (or AAPL’s main competitors) trade is over (it’s been a one way trend for years now).  It was a great run as the below graph illustrates.

The entire global technology industry gets interesting going forward.  Both in terms of relative stock prices (trading opportunities) of the main players (software, hardware and even tech services) and main technology road maps.  From a personal perspective, this is the way it should be.  The “AAPL is going to put everyone out of business thesis” that was going on for about a year was my signal that the fawning over AAPL was getting out of hand.

Courtesy of StockCharts.com: Apple (AAPL) vs the S&P 500 Technology Sector (SPT)

Apple vs S&P 500 Technology Sector
Apple (AAPL) vs S&P 500 Technology Sector (SPT)

 

Until next time.

 

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2 thoughts on “End of the Blind Apple Trade

  1. Thanks for the article…. What is your outlook information technology sector – are you favoring one sub-sector over another?

    • @stockpicker

      Thanks for the comment. Please see the graph of the Nasdaq 100 vs. the S&P 500 index.

      Despite all the media attention that big cap information technology companies get, since around April of 2012, big cap info tech has actually under-performed the broad S&P 500.

      The recent decline in Apple’s stock (since the most recent peak in Sept 2012) has a lot to do with the recent Nasdaq 100 relative decline to the S&P 500 since September 2012. The big fear is declining profit margins in the consumer mobile space, not just for all consumer PC’s.

      Mobile computers (smartphones as they are called), though relatively new, are just computers in the overall scheme. The Apple Iphone was the first real usable smart phone. Apple gets credit for getting it right and they have reaped the benefits of that good design work.

      Once the PC makers (along with Google and Microsoft….Android and Windows are the main competing consumer mobile operating systems) figure out how to operate with half decent, usable products in the consumer mobile space(ranging from smartphones, tablets, to laptops), the industry should settle down. But the one given is profit margins will come down for industry leading Apple.

      To answer your question on info tech subsectors, I prefer high end business focused software makers over consumer hardware makers and their supply chain, at least near-term while the PC makers margins get straightened out. But this is a company by company research and analysis task.

      The big prize for Apple and Google, and Microsoft’s big fear. If one of the three companies comes to dominate the mobile consumer space, that’s the company that will probably, over time, come to dominate the entire business segment as well. If you own the dominant mobile platform, you’ll eventually dominate the business desktop as well.

      Hope this helps. Please email (see the About VR View page) me if you need to go over any individual companies in detail.

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