For a long time Wall Street has seen Apple as a sure bet and been keeping the share price high believing in Jobs’ Reality Distortion Field.
Shedloads of pension and hedge funds had been pouring their customer’s cash into Apple. This seems to make sense, after all, Apple shares always went up, which meant that pension funds grew.
But since the middle of 2012, Apple’s share price has fallen by 28 per cent as people started to wake up to the fact that there were better, cheaper products out there, and Jobs’ Mob had not kept up.
Now it seems that even Apple cheerleaders like Reuters are having to admit that Apple is not the safe bet it was and as it suffers, so will more than 10 per cent of Wall Street’s assets.
For some daft reason, Wall Street had been sticking all of its eggs in one Apple basket. Apple makes up 10 percent or more of assets in 117 out of the 1,119 funds that own its shares.
To make matters worse a large chunk of this was invested after March and after Apple first exceeded $600 per share. As the shareprice plummeted investors have been watching as their money disappeared down the drain.
Reuters cites the $302 million Matthew 25 fund, which has 17.4 per cent of its assets in Apple. The fund is one of the top performing funds for the year as most of its Apple shares were bought years ago at a bargain basement price of about $125 per share.
But for some reason the outfit put $158.9 million of the fund’s assets, 53 per cent, into Apple after the end of March, when Apple was trading near $615 per share. So if you invested in Matthew 25 in early April the value of the fund’s Apple stake fall about 19 percent. If you did so after September then you will have seen the Apple stake drop 27.2 percent.
Analysts, who had been cheering for investors to buy Apple stocks at inflated prices, are now making smug pronouncements about the drawbacks of portfolio concentration. But what is not being said is how Apple’s shareprice was far too high in the first place. Nor does their appear to be any financial market soul searching about why its fund managers swallowed Apple’s marketing.
Apple’s share price was already too high and required the company to make lots of promises about future revenues. While these were likely, there were some areas that this was going to be a difficult cheque to cash. Apple needed the Chinese to prop up sales of the iPhone 5 to match an expected reduction in spending in the depressed economies of the US and EU.
However the Chinese were always a problematic market for Apple, which only managed to have reasonable sales when the iPhone 4 came out. It turns out that the iPhone 4 sales in China were just a fashion, and they were not going to play the same “upgrade every year” games that Apple’s US customers accept.
iPhone 5 sales in China disappointed and in the US tax-motivated selling among people who want to avoid potentially higher capital gains taxes in 2013.
But the real danger is that as Apple falls it could take the rest of NASDAQ with it. Fundholders with more than ten per cent of their cash in Apple could see their profits disappear overnight. Some could even go under. When that happens the entire tech industry could be thrown into a depression and it will take years before shareholders start to believe that technology is a wise investment.
The reality is that it will be Wall Street’s own stupidity and greed which caused them to buy into Apple’s marketing image. It is also the fault of a technology and financial press which has been acting as Apple’s unpaid press office and re-enforcing an image of a company which was unsustainable