Posted by Mark Eshman
The Wall Street parlor game of what would happen to Apple stock after the October, 2011 death of Steve Jobs has morphed into a populist frenzy over the past 18 months, as shares somewhat surprisingly and steadily rose to over $700 a share last September, and then came crashing down over 40% to a low of $390 earlier this month.
Now, I’m not saying it’s related, but it is instructive, that during these same 18 months there’s also been a populist frenzy over the Kardashian sisters. Part of successful investing is making connections, often between apparently unrelated things. So, I’ve come to the conclusion that Apple stock and the Kardashians have a few things in common:
1) The proliferation of what I call “buzz” media: the sound bites of titillating stories designed to generate water cooler talk (or in today’s world, retweets). Think: exclusive video of Kim’s ample belly or booty on TMZ, or Jim Cramer screaming “buy, buy, buy!” on CNBC. Everyone is hooked, and it’s really hard to avoid. Even if you don’t watch it, someone will post it on Facebook or you’ll catch it on a TV screen in your dentist’s office. Is it important? Who cares!
2) The facts matter less than the story. Kim Kardashian has 10 million Twitter followers and few of them could tell you why she is famous. (Hint: it started with a sex tape.) Nonetheless, in the rich cultural tradition of her predecessors like Zsa Zsa Gabor and Paris Hilton, Kim and her clan have embodied what social scientist Daniel Boorstin called "a person who is known for his well-knownness." In a similar vein, Apple has become a target for being famous. Apple stock has risen over 4,000% over the past 10 years, but the real “story” is how fast it’s crashed post-Jobs. The company generates $40 billion in quarterly revenue, nearly $10 billion in quarterly profits, and still trades at a 50% discount valuation to the S+P 500. The company is sitting on $144 billion of cash, more than the value of all of the stocks on the Tel Aviv stock exchange combined! Still, people can’t get enough Apple trash talk.
3) Consumers of both the Kardashians and Apple stock are starting to converge. Up until the end of 2011, most shareholders of Apple were loyal users and/or savvy investors. In the post-Jobs era, Apple has become more of a speculative play with shareholders hanging on to every new product rumor, Chinese factory retooling, and “i-anything.” They punish the stock if a rumor doesn’t materialize, but keep watching, lest they miss the next 4,000% move. These are the same folks who were upset that Khloe’s faux wedding to Lamar didn’t pan out, but can’t wait to find out what Kanye wants to name the baby.
Will people remain obsessed with the Kardashians for much longer? Will the Kardashian-watching Apple shareholders ever focus their attention on more than just a sound bite in order to make more intelligent investment decisions based on long-term fundamentals? So, the question isn’t whether Apple stock is a good investment. The question is, who should buy it?
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April 24, 2013 | 10:30 am
Posted by Mark Eshman
(3/29/12 – CBS Marketwatch) Bernie Madoff: “From my first interview to the media I have said that ‘the banks must have known,’ and were complicit and contributing to my crime.”
He’s back. In a pathetic effort to reduce his 150 year sentence while also offering his unsolicited assistance in reforming the financial services regulatory regime, Madoff is making sure we all know that JP Morgan, Citibank, and other large global banks knew that they were participating in his $50 billion Ponzi scheme that shattered lives as well as investor confidence.
The real lesson from Madoff isn’t that crooks will think twice before screwing investors and therefore the world will be safe for investors. History simply isn’t on our side. It will happen again, but we need to know the right questions to ask.
So the next time you are presented with a “too-good-to-be-true” investment opportunity, Question Number One should be, “where will my money be held?” That’s it. End of story.
The vast majority of registered investment advisors and hedge fund managers are decent, trustworthy fiduciaries who won’t steal your money. Think of investment advisors like commercial airplanes. You only hear about the crashes, not the safe landings.
Most advisors keep clients’ money in custody with a third party brokerage firm like Charles Schwab or Fidelity. These firms have extensive fraud and investor protection systems. Not Bernie. He held clients’ dough at Bernard L. Madoff Securities; a brokerage firm owned by, well, you get the picture.
A now-famous (and completely unconfirmed) story: Three well-known partners of movie company met Madoff a number of years ago. LIke most of his victims, they were impressed by his modest, but extremely consistent long-term performance. Two of the partners signed up on the spot, but the third simply asked “where do propose keeping our money?” When Madoff answered, Partner #3 said “thanks, and goodbye.”
Madoff’s genius was his appeal to a different type of greed. It wasn’t that investors were promised or expected 20% returns. Rather, they were promised something that doesn’t exist in this universe: long-term consistent returns, year-in and year-out. The frustrating thing about the Madoff affair is that investors could have avoided their catastrophic losses by simply asking the only question that matters.