Why are analysts almost always wrong about Apple?

“Look at Apple: analysts like Toni Sacconaghi at Bernstein and Katy Huberty at Morgan Stanley have outsized influence when it comes to driving its stock price with their reports,” Karl Kaufman writes for Forbes. “Before releasing its earnings report on May 1, Apple stock went down more than 3.5% on April 20 after Huberty predicted that iPhone sales would be more sluggish than expected and the stock would fall post-earnings.”

“As reported in Barron’s, Huberty’s note ‘offers more troubling fodder to an increasingly negative news cycle: The iPhone X isn’t the top-seller Apple anticipated, the company is struggling to expand its supply of OLED screens, and demand for its products is weaker in China,'” Kaufman writes. “Sacconaghi had lowered his iPhone shipments estimate from 52 million to 51 million. Bank of America Merrill Lynch analyst Wamsi Mohan wrote in a note to clients, ‘In our opinion, investors are already expecting a weaker CQ2, but the magnitude could be surprising to some.'”

“So what happened when Apple reported earnings on May 1?” Kaufman writes. “iPhone shipments were 52.2 million (led by the top-selling iPhone X), revenue in China increased by 21% and Apple announced a 16% dividend increase and a $100 billion share repurchase program.”

“Analysts are paid millions of dollars a year, their firms have the most expensive algorithms and predictive models and yet, they consistently miss the mark with their predictions. The market, however, responds to these reports as if they were gospel,” Kaufman writes. “Spencer Jakab, a former analyst for Credit Suisse and currently a writer for the Wall Street Journal, wrote about his former profession, ‘Analysts are, as a group at least, like the farmer who bolts the barn door after the horse has run into the meadow.'”

Read more in the full article here.

MacDailyNews Take: As we wrote back in January:

The following qualifications are required in order to be a financial analyst:

• Zip;
• Zero;
• Zilch; and
• Nada

So, why do brokerage firms employ analysts? Because brokerage firms make their money on commissions and fees. In other words, the act of charging investors to buy/sell securities. Analysts recommend buying or selling based on scant evidence, misreading evidence, wild guesses, and/or coin flips. Some even – GASP! – lie.

The few good analysts actually listen, realize they never have all of the information, and actually use some math to try to make accurate calls based on the paltry information they do have at their disposal. Most analysts exist to create churn – buying and selling – in order to generate commissions and fees for the brokerage houses that employ them. The “business news” outlets treat their pronouncements and “concerns” with much seriousness and deep consideration, as required by every decent charade that involves a monetary exchange.

Most of the “Apple analysts” in the world couldn’t analyze their way out of a wet paper bag, much less accurately predict iPhone supply and demand.

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

23 Comments

  1. These analysists doom and gloom Apple on purpose for their greed and profit, bring the value down knowing well it will jump up after Apple releases the actual numbers. Then these gloomers go quiet because they made a good fortune buying on the cheap and Apple unable to fight back. Ironically Apple benefited a lot from these analcysts, they bought more shares at $20Billion + along with Warren Buffet

    1. Fortunately, with Apple’s aggressive stock buyback plan in place, it is actually helpful for shareholders when these crooks start spreading lies about tanking iPhone sales. Last year at this time Apple had a little less than 6 billion outstanding shares, now it’s just below 5 billion outstanding shares. That’s about one billion shares gone away for loyal shareholders, which means dividend cash will go a lot further.

      Decreasing share count will make it harder for Apple to reach that $1T market cap, but I’d rather get the dividends than see Apple reach some arbitrary market cap level. Yeah, Amazon will probably beat Apple to the trillion dollar mark, but apart from bragging rights, it really doesn’t mean much for Apple shareholders. Wall Street wants Amazon to be the top company, so it’s likely bound to happen with Amazon being constantly pumped higher and higher.

    1. Sometimes it is difficult to tell the difference between stupidity, incompetence, and manipulation. Proving intent is even more difficult.

      1. When you take a look at AAPL, for the last 10 years, you see a pattern. When you map it will real life events; keynotes, fiscal reports, supply chains orders, Warren Buffett’s acquisitions, Apple’s buyback program, it is striking… But hey! I ain’t no specialist, just ridding the AAPL wave since 2007.

  2. Having invested in Apple stock since the 80’s, I can say this with certainty: an investor would be rich had he simply done the opposite of analysts’ advice regarding Apple. That is not an exaggeration. A monkey throwing darts at a buy/sell target to decide which way to go would have done better.

  3. The same reason they are wrong about the economy, foreign policy, political polls, racism, Southern states, and America in general: it’s the feeling they have an inside track to a greater knowledge than others allowing them to look at things more ‘critically’ than us lower caste commoners.

    1. Typical tactic – identify an area in which the analysis results are often weak and then apply that broad brush to everything that involves answers that you do not like.

      You can do what you want with most financial analysts – they add little or no value to society in my opinion. But your broad brush disparages and undermines many people who work very hard to quantify and analyze important aspects of our world and our society. Weather forecasting, for instance, is a very involved science. But I suppose your gut can do better.

      1. ‘Typical tactics’ are what analyst who try to sway opinion use, I am merely pointing this out.

        Financial analyst can most certainly sway markets, you are silly to not see this.

        Did I mention weather forecasting? No, I didn’t because it relies on statistical facts and not opinions.

        I mentioned economy because one of the most used terms in their reporting is ‘unexpectedly’, and this usually applies to when the economy is doing bad under Democrat leadership or good under Republican leadership. The intent is clear there.

        Foreign policy is a very malleable subject however analyst seldom believe any good can come from the right and only good from the left. If you don’t believe this then you aren’t paying attention.

        Political polls? They are always slanted to the left until the final days before an election and then everyone wonders how did we get that outcome, and this is because they believe the polls and forget who is paying for them.

        Analysis of racism is mainly bullshit and based on first reports of situations that later turn out to be false, but the minds of many are already set and are reflected in polls.

        I’ll leave off the last two because you have gotten this far not believing any of this so no use wasting anymore time.

  4. AAPL is simply a game stock for Analysts, who are only doing what their masters tell them (Financial Institution that pay their salary). Quite simply, all these FI’s want is buy/sell churn in APPL, where loads of investors are busy transacting …. that is the key, where the FI makes their profit on the buying and selling transaction costs as well as any FX in either direction from international investors. What these FI’s absolutely hate is a load of Warren Buffett mini-me’s, who boringly buy the stock and hold foreeeeeever, rather selfishly enjoying quarterly and forever rising dividends ……. so no transaction fees for the FI’s; what a bloody shame!

  5. “their firms have the most expensive algorithms and predictive models and yet, they consistently miss the mark with their predictions”

    Nonsense. One only needs to see that one of these analysts disagrees with another to realize that these so-called “most expensive algorithms and predictive models” are not all they are hyped up to be.

    1. The absolute best “analyst” is management.

      I have tracked Apple management’s quarterly guidance since FY2005 and found it to reliably predict what Apple will report.

      Not once since I began tracking has Apple missed the bottom of its revenue guidance, while often times exceeding its top revenue guidance. And this with a revenue guidance range that is very narrow (about 3.6%).

      My “algorithms” are Excel spreadsheets that track historical trends. Applying those trends to management’s guidance has served me VERY well. I have goofed, but not often enough to cause me material harm. On the other hand, market moves caused by bogus “analyst research notes” have harmed me substantially ($159,000 during the March quarter alone).

  6. I’m sure they’re not that stupid to be fooled every financial quarter. I simply believe many of them are liars and crooks working to deceive ignorant investors for the purpose of making money for their firms. I would ask, how could they be so dishonest, but that’s what most humans will do to earn a living. It’s like those brokers who work at firms and try to unload crappy stocks using deception on desperate investors.

    It’s absolutely disgusting when a person has to stoop that low to make a living, but I suppose dishonest used-car salesman are the same. I’m just glad my life doesn’t depend on having to cheat people day in and day out. Maybe I’d simply get used to it and be able to justify my reasons for doing such a thing.

    Whenever I hear these analysts telling people to dump their Apple stock and get some other stock instead, I think of Bernie Madoff, just happily ripping-off investors with lies and deceit without having a shred of a guilty conscience. I can only hope they’ll end up in jail for life just like he did.

    I think Katy Huberty was the only analyst I heard making an apology for getting Apple’s past quarter wrong and causing shareholders to lose out on share gains. Even if she was lying it was still refreshing to hear. I don’t trust them and I know right away when a couple of weeks before Apple’s earnings, some analysts begin throwing out reports of iPhone sales shortfalls. Even if those rumors were correct, that’s still not a reason for a long-term shareholder to bail on a company, especially if they’re getting dividends and an active buyback plan is in place.

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