How hedge funds could hurt Apple

a hedge fund is an investment deal where you can’t tell what you are buying from the writing on the paper, and what you are buying is the paper.

You can do that, if you want.

But anyway, I am grateful for the information regarding pension investment strategies. I still fail to see how the actual profits generated by the business corellate with capitalization rather than industrial performance. Apple has 20 billion in cash. If apple needed capital to move forward, that money would be deployed accordingly. Whichever way one may analyse the numerics generated by pundits, the people will be cutting slices of a pie that has a specific size. Let’s talk about baking the pie, not the smell.

@ Cynik

You need to understand something about the American context in order to make judgments about the effects of hedge fund activity on underlying business activity. Since World War II, American companies and their financiers have been successful in convincing employees to tie their retirement funds to investment in the stock market, especially in the stock of the companies they work for. Most employees have a very cramped view of what constitutes diversification. Thus, when stocks like Apple take huge dives, the confidence of both employees and potential consumers of Apple products (and there would be plenty of overlap) is undermined. This affects the future profitability of the enterprise.

The problem with your view is that it is too supply-side biased. It doesn’t make sense for the consumerist global economy. The challenge for monetary policy in our current age is to tack between both supply-oriented and demand-oriented economic theories, because neither side alone reaches the full range of economic behaviors.

This article is fundamentally flawed, insofar as it suggests that hedge fund activity can hurt Apple, the company.

Clearly, it cannot. Apple makes products and sells products. Apple has massive wonga in the bank. Apple, the business, will not be affected by a lowering of the share price because a bunch of fools decide to panic. Apple is not in debt, and cannot be sent to the wall by a low share price that culminates in negative equity for the firm.

The only way a firm can be sent to the wall by a run on shares is if its liabilities exceed the total capitalisation based on the share price. So the firm would need to have huge debts, only marginally smaller than its share value.

And so…. once again we have speculators getting hugely excited about their influence, when in fact they simply do not matter.

If a bunch of hysterical speculators sell Apple stock and the price plummets, a Warren Buffet will emerge to make an absolute killing on cheap, undervalued stock. And this will be all to the good for Apple, because it will have rid itself of idiotic shareholders and replaced them with intelligent, able business people.

There is something seriously wrong with the financial acumen of people who get excited about the movement of stock numbers, without reference to the underlying asset balance and business model of the firm they have invested into. These people, by definition, do not have a clue about what they are doing. They are fools, and should expect to be parted from their money.

We should must acknowledge that bubbles are a fraud. They are a sustained fraud, and from the time the bubble starts until the day it bursts, everyone who partakes of overvalued stock is partaking in a fraud.

To think, these fraudsters are being bailed out by the taxes of children who have yet to reach working age. What a consumate disgrace. What an brutal indictment of the worthless individuals who populate the market at the current time.

DeWitt,

Let me see if I’ve got this right: Fortune and CNN pay you to report on TMO’s Apple finance board? (’cuz that seems like what 80% of these columns are about)

Nice work if you can find it.

ex ped: It’s Mr. Elmer-DeWitt to you, gripedejour. I think 80% is probably a bit too high, but AFB is a wonderful resource for anyone covering Apple. The participants are always on top of the news, and they tend to have a pretty smart take on it.

“[Thanks to "cramar" at TMO's Apple Finance Board for the tip.]”

Why doesn’t the author keep this tip himself and sell AAPL himself? Really funny. There must be some hidden motive!

ex ped: Ah, the hunt for the hidden motive. For the record, the author doesn’t hold any position in AAPL, positive or negative.

This is true although I would tend to believe that Apple would be included in a “flight to quality” list of securities when compared with other firms which are seeing large declines in revenue year over year.

The most important element of this story for Apple investors is that it explains one more factor that can cause the stock price to drop unrelated to market fundamentals. This emphasizes the value of building cash liquidity, to buy more AAPL during such “fire sales.” Make the hedge fund losses your gains once market fundamentals resume control.

So in 4 quarters Apple will be at $25,,,, lol

I agree with Kevin. Watch out for the timing of this article. What appears to be going on is that pros are buying while saying “watch out” to get people to sell.

So now we understand why hedge funds are doing so bad. A whole bunch of stocks are more than $100, so i guess it’s not too smart for them to pick AAPL.

But just be careful, the timing of this article can be a trick to allow hedge funds to cover their AAPL short positions.

Agreed – interesting article.

Cool, thanks PED. It’s remarkable that the SEC cares so much about volatility that can be induced by the small fish day traders – thus the T+3 settlement rules and Pattern Day Trader designations. But for the hedge funds, they are unregulated and can bring chaos to a stock without penalty.

I’ll keep an eye out for 15-Nov.