Shorting Apple: How interested parties frame stories to drive down Apple’s stock

“When you’re one of the world’s largest and fastest growing companies, you’re one big bulls-eye,” Jonathan Littman, the first news editor of Mac Week magazine, writes for The Huffington Post. “hese past several weeks that fresh reality has helped fuel a high stakes narrative game, turning Apple into a case study for how interested parties frame a story for a distinct end — in this case driving down a company’s stock.”

Selling Apple Short narratives fall into three basic categories:

• The Achilles Heel: The Achilles Heel story revolves around the hero who uncovers some previously secret financial weakness that foreshadows doom. Enter analyst Walter Piecky of BTIG. Piecyk cut Apple to hold from buy on April 9th the day before it closed at a high of $639.93. His main rationale was what he forwarded as Apple’s Achilles Heel — his theory that wireless carriers will rebel and stop subsidizing the high cost of iPhones, and dramatically reduce Apple’s revenues. So what happened? Apple sold 35.1 million iPhones during that second quarter. Sales in China tripled from a year before, reaching $7.9 billion. Quarterly revenue was $39.19 billion, up from $24.67 billion a year before. Few seemed to notice that Piecyk’s “carrier subsidy” argument had not materialized or even been remotely relevant. Or that Piecyk (and just about every other analyst) had failed to anticipate the phenomenal sales growth in China or the stunning fact that Apple generated 64 percent of its revenue from international sales, the narrative strands that would matter most for the present and future of the company. On April 25th, the day after the earnings were released, Apple’s stock leapt more than 8% to $615.64 based on those phenomenal sales. But Piecyk remained a genius. How could this happen? His carrier myth spun viral in the instantaneous, anything goes, “news” world of the Internet.

• The Parabolic Curve

• They Can’t Continue Forever: This narrative has been the bread and butter of hedge funds that recently bought, sold for great profit, and then shorted Apple. A key argument has been that Apple has lost Steve Jobs, its visionary hero. This narrative conveniently ignores that innumerable companies continue to be great after the founder dies. Or that Sir Jonathan Ive, Apple’s lead designer for the iPhone, and iPad, and countless other products, has enormous operational control at Apple and we’ll likely be seeing the fruits of his genius for a few more years. Jobs, for instance, told his biographer Walter Isaacson that nobody at Apple can tell Ive what to do: “that’s the way I set it up.” On a deeper level, this is the non-thinking “God is gone,” universal rebuttal to Apple’s extraordinary success. The non-thinking argument goes that since Jobs isn’t there anymore every other tangible proof of existing and future success must be thrown out the window.

Littman writes, “We have a visceral desire to connect with other humans, movements, ideas and images. Argue all you want whether we are too consumed by our gadgets and screens but the impulse seems unstoppable. So far no other company on the planet approaches Apple’s skill at crafting these portals to other worlds. That’s priceless.”

Much more in the full article – very highly recommended – here.

MacDailyNews Take: As we’ve written frequently, as recently as last month:

AAPL is like a buoy. Quick, it’s back on the surface! You there, analyst, and you, too, swim down and tug on the chain! Drag it under.. lower, lower… good! Now, quick, everybody jump on, and we’ll take a ride back up to the top again!

Rinse, lather, repeat.

Related articles:
Is Apple’s stock manipulated? – May 21, 2012
Analysts starting to panic about Apple’s Q312 earnings or something – May 12, 2012
What’s behind unusual trading in Apple – March 26, 2012
Apple’s $40 rise and fall: Was Goldman Sachs behind it? – February 18, 2012

6 Comments

  1. And these are the people that will secure your retirement???

    We are all in trouble if that’s the case. If they only let Apple do what it would do naturally we’d be fine.

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