Friday, February 17, 2012

Apple's Stock May Not Be As Cheap As It Looks

Is that a joke? Well, it's the title of a Bloomberg article today.

From a post on here of four years ago I wrote...  MarketWatch highlights a small cap fund manager who sharpens his edge with the timeless principles of value investing made popular by the greatest investor of all time, Ben Graham. While Wall Street was blowing all of their cash at the very peak of a major cycle top, this fund manager was building his war chest of cash based on actionable intelligence. On timeless truths. Very, very few can actually walk the talk when it comes to the great discipline required for value investing. For the only true method of successful investing. I wrote on here long ago that only fundamentals-based investment knowledge would provide a safe haven in Wall Street's mad world of quantitative Frankenfinance. How true that has become. We live in a world where Graham's principles have been chucked to the curb like a bad habit. Instead I still hear the mindless blabber of physics majors using financial derivatives to hedge factors they don't understand. And none of them can spell economics, sociology, timeless investment ideals or fundamentals. What we see on Wall Street isn't science. It's voodoo backed by funny math. 

"To the extent that Wall Street gets away from book value, it is headed into potentially dangerous areas of thinking.  It then introduces factors – chiefly the notion of increasing future earnings – which are very difficult to measure and which therefore may be badly measured."  -- Benjamin Graham, most likely the  greatest investor of all time.  I mean investor.  Not gambler like those who are buying Apple's stock based on generally accepted bulloney of what quantifies an investment in today's financial freak show.

Okay, this is really simple.  I'll type really slow for Wall Street MBAs and Bloomberg reporters.  (That means you read this really slowwww.)  Read Ben Graham's simple statement above.  Now read the rest of this paragraph.  Apple's revenue has increased about 7x over the last seven years or so.  It's book value even less.  It's stock price has increased about 100x over that same period.   Do you see a potential issue here?  Bueller?  Bueller?  Anyone?  I mean come on.   This isn't rocket science folks.  You simply don't have to be an effing idiot.  In other words, don't let your Ivy League education interfere with your learning.

Apple's stock price has traded in a very, very tight linear regression band since 2009.  That tight linear regression band tells us the stock is being driven by program trading or Frankenstein finance.  It's price has absolutely no relevance to anything other than how much leverage and pump Wall Street and hedge funds can create to drive the stock into the stratosphere for personal profit.  There is no logic behind the valuation of Apple any more than there was logic behind the Internet bubble pump and dump or any other financial scheme Wall Street dreams up.  Earnings used in this Bloomberg article to finally ask the question whether the stock may not be cheap are as preposterous as stating the stock is actually cheap in the first place.  Apple's stock is a massive bubble.

In the past few weeks, the stock has shot through the roof and out of the manipulated regression band.  That is most certainly some type of squeeze or manipulation accomplished using derivatives.  What the hell does any of that have to do with anything?  Does Apple make unique products?  Sure they do.  But how does that have anything to do with a stock that has been pumped up 100x in a handful of years?  NOTHING.  The stock market reflects nothing of any type of reality.  It's an illusion created by an Orwellian world of finance gone mad.   

posted by TimingLogic at 2:33 PM

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