The mystery of Apple’s crashing stock price

“It is not unusual for investors to find the markets moving in ways that seem to defy common sense. Companies often feel the same way. They announce good results, they have a great product pipeline and plenty of cash in the bank, and the stock price falls off a cliff. The directors throw up their hands and wonder what on earth the markets expect from them,” Anthony Harrington writes for Seeking Alpha.

“However, what looks to be irrational or at best understandable as a wild amplification of a minor negative — something markets can do from time to time as investors overreact and ‘herd behavior’ sets in — can occasionally have a more rational explanation,” Harrington writes. “Apple (AAPL) provides an excellent case in point. The stock has a long history of soaring rallies and massive sell-offs. Why is this important? As arguably the most successful and iconic company in America, and as a company that has a reputation for rewarding buy-and-hold investors if they can ride out its price troughs, Apple is a major component in the portfolios of big institutional funds across advanced markets. Fund managers know that by maximizing their allocation to Apple, they are giving themselves a very good chance of outperforming over the medium term.”

Harrington writes, “In an excellent article featured in Seeking Alpha, Jason Schwarz points out that the key to understanding Apple’s huge sell-offs from time to time lies in the fact that most fund managers will have a rule that says that any single stock cannot be more than a certain percent of their total portfolio. The reason for this is to honor the idea of diversification as the best way of protecting capital. If you follow this idea of a restriction on the percentage any one stock can have allocated to it, then it follows that when Apple is doing one of its major run-ups, adding very substantially to its price, as happened when it went from $500 to $700, the total value of Apple holdings in many fund portfolios rapidly exceeded the allowed allocation. So the fund managers have to rebalance their portfolios by selling off a chunk of Apple stock to bring the allocation to Apple back within their policy constraints.”

Read more in the full article – recommended – here.

MacDailyNews Take: You can define “crashing” however you’d like, but while Apple is certainly down from its September 21st all-time high of $705.07, one year ago, on December 9, 2012, AAPL shares closed at $393.62.

[Thanks to MacDailyNews Reader “Arline M.” for the heads up.]


  1. Earnings for this quarter will be very hard to predict with the staggered supply availability of all the product updates and the greatly ramped up world-wide availability along with the margin reduction due to lower margin iPad mini sales and the higher initial manufacturing costs due to the upgrades. However, the thing to watch will be the forward guidance issued during the January earnings report. The Jan-Mar quarter should be the blow-out one and I expect that to be reflected in the quarter’s guidance. Additionally, there will hopefully be an announcement of adding the largest Chinese phone carrier which will cause a big impact whenever it happens.

    1. Bang on! MDN’s take is frivolous at best. The consumer’s love affair with Apple is not tarnished or diminished but is will stall as only the real fans will buy every new gadget Apple Inc. puts out. I see the stock settling in at $375 to $400 with nice quarterly dividends. One question I have is whether or not Tim Cook has the persona and appeal that the street is looking for in a CEO? He was certainly scripted last week of NBC and he appears to repeat himself a lot when interviewed.

      1. Exactly. Same thing with LinkedIn or Amazon or Lululemon. Apple hasn’t acquired a Teflon coating? Or hasn’t paid enough money to the right people in power?

        Apple’s $122 billion cash hoard seems to be more like Superglue than Teflon.

      2. The longer you have held Apple stock the more yield, the more capital gain.
        Apple has seen much greater appreciation over Google in lets say the last 5 years.
        Because of the fiscal cliff Apple is unfortunately being the victim of its success.
        I’m in buying mode right now.

    1. Because it’s years end and they have to rebalance their holdings. They do not want to have an overweight position in any one equity. They are overweight in AAPL. Thus they must trim their holdings. Plus they are smart enough to take their profit that they have earned. Mutual funds don’t invest in Apple just to brag about owning it forever. They invest to make money.

  2. ANALysts crystal ball in the shop for repair.

    Typical stock market cluelessness and uniformed manipulation.

    SEC on vacation.

    Fiscal Cliff excuse trumping future Christmas quarter sales numbers.

    Animal Farm.

  3. ERROR CORRECTION to MacDailyNews Take:

    Please read “December 9, 2011” as in:

    MacDailyNews Take: You can define “crashing” however you’d like, but while Apple is certainly down from its September 21st all-time high of $705.07, one year ago, on December 9, 2011, AAPL shares closed at $393.62.

    MDN rarely correct their typos, so I’m giving them a nice little xmas gift of editing. 😉

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