One of the reasons that Apple’s share price is tanking is largely due to the huge hedge funds that propped up the company’s meteoric share rise.
While some sections of the press will tell you that the share price was headed towards $1,000 because investors believed it would make a fortune with its wonderful technology, it was actually being fuelled by the antics of the big hedge funds.
According to Reuters, all was revealed when the biggest hedge funds that helped make Apple a stock market darling lost faith and dumped their stakes in the fourth quarter.
Leon Cooperman, Eric Mindich and Thomas Steyer unloaded billions of dollars of Apple shares between 30 September and 21 December.
They seemed to know something others didn’t. Apple’s share price rose to an all-time high of $705.07 on 21 September and while it was claimed the shares would be worth $1,000 by the end of the year, the prices started to slump drastically.
Suddenly investors were worried about increasing competition and declining profit margins.
Now, with dollops of hindsight, analysts are claiming that Apple’s share price dropped because the price rose too much, too fast. In other words, the hedge funds predicted that Apple’s price had gone as far as it was going and dumped their shares.
The profits they made were huge. Most of them exited their positions with substantial profits because they bought years earlier.
Rosenstein and Cooperman both started gathering their stakes in the middle of 2010, when Apple shares traded below $300. At the time the iPhone 4 was beset by “antennagate”.
Not all well-known hedge fund fans of Apple cut ties in the fourth quarter. Some only trimmed their holdings on the belief that Apple would restore its value eventually.
The question is, then, how much of Apple’s share price was ever based on its products and how much was a hedge fund feeding game which came to a bitter end when the main players believed they had played it as much as they could?