I want to talk about Apple.
The stock, and the pie.
Because in this case, they might as well be the same thing.
Recently analysts at Nomura downgraded AAPL to Neutral from Buy. They cited the iPhone X demand being in “the late innings” and while high margin services growth is positive, it may be “dependent on unit sales”. In addition, positive factors may already be “baked in” to the AAPL pie.
This may be. I have no idea.
But it calls to mind a food critic, critiquing an apple pie at your Christmas table:
“The crust was a bit soft, lacked optimal flakiness. It would have benefited from using Northern Spy apples and a touch less cinnamon. Overall, my stance on this pie is neutral. I do not recommend partaking of it at this time.”
Okay. Thanks for the tip, Anthony Bore-dain.
But it’s still apple pie. And that’s the point. Its popularity is not constrained to its particular features at any given moment.
People want apple pie. More than that, they expect it. You HAVE to have some Apple Pie on your dessert counter.
Apple pie is like Pizza (and other things) – when it’s good, it’s great and even when it’s bad… it’s still pretty good.
People have a connection to apple pie on a deeper level. As in “Mom’s” and “as American as”. Do you know any other desserts that get that kind of PR?
(What’s that? You don’t like apple pie? Fine. Commie.)
AAPL Pie is like apple pie. As CNBC’s Jim Cramer’s said in response to this report; this kind of thinking is what “got you out of AAPL at $100, at $110, at $120. Need I say more?”
Not to me, he doesn’t. The critiques of AAPL pie and apple pie may be 100% correct from the pre-orders to the unit sales to the sub-optimal pectin ratios. But when it comes to pie, apple is still the king. There are other pies out there - including Blackberry (BB) Pie, which used to be popular 10 years ago before people found it too difficult to consume. Heck, some of the may technically taste better, but they don’t have the same broad appeal.
Your taste (i.e., whether you like it or not) is irrelevant. My dad liked apple pie (like all goodhearted people). He also liked “mince pie” which consisted of rubber fruit, cloves and I think squirrel meat.
Let me tell you something. You can craft the Beethoven's Fifth Taj Mahal Mona Lisa of mince pie using the finest nutmeg and most succulent bits of squirrel kidney in the world, all baked to gluey perfection. It will lose to a below average apple pie every time because people don’t WANT it.
We have all bought a stock at some point and watched it languish for months (years?) thinking, “I don’t get it. This stock is great! Why doesn’t anyone notice this? I feel like I’m taking crazy pills!!
That brings us to the actual, unvarnished and totally underappreciated truth of the only reason we buy a stock:
You buy a stock because you believe OTHER PEOPLE will like it.
More specifically, like it enough to buy it from you at a significantly higher price - hopefully sooner than later.
Seriously. We don't think in those terms, but (income stocks excepted) that's the ultimate reason we buy a stock.
Don’t get me wrong, I’m not throwing fundamental analysis out the window. Facts matter. It's just that they must pass through peoples’ emotional filters before they do.
This is why understanding sentiment is such an important piece of investing. So we can separate the AAPL pie from the mince pie. My colleague Richard Peterson, MD., provides such sentiment anaylsis via www.marketpsychdata.com. He also wrote a book on the matter, aptly titled, Trading on Sentiment.
But wait, you may be saying. AAPL pie isn’t always in demand. Its performance wains sometimes. Yes, that is true, usually after everyone has had a third helping. And do you know what happens soon after people are done gorging themselves on it? Somebody says, “You know… I could really go for some AAPL pie right now.” Millions of people go, “Yeah, me too!” And then everybody stuffs their faces again.
So this Christmas when evening comes and you're sitting around enjoying a cup of coffee and a slice of something you enjoy, remember this truth: People don't need perfection in their stocks or their pie. They just want what they want.
Merry Christmas, everyone.
And hey... let's be careful out there.
Frank Murtha, Ph.D.