Unintended Consequences of Apple Secrecy

| About: Apple Inc. (AAPL)

Every investor on Wall Street is trying to solve the mystery of
Apple (NASDAQ:AAPL). Some call it a catalyst driven stock. Others dissect the
fundamentals. Traders have a field day riding its volatile ebb and
flow. Jim Cramer says all anyone wants to talk about is Apple. As
investors around the globe try to understand this stock, an interesting
phenomenon is beginning to unfold. We’re witnessing a case study of
the unintended consequences of secrecy.

Never has there been a company single-handedly determine the
direction of technological innovation like Apple. Competitors can’t
develop a smartphone without copying the iPhone. Competitors don’t
want to release a Tablet before seeing what Apple has come up with.
Microsoft (NASDAQ:MSFT) abandons their own R&D and mirrors Apple with Windows 7 and
Microsoft Retail. In this king of environment, Apple has become more
secretive than ever. Leaks about new products or quarterly sales
never come from headquarters anymore. Steve Jobs has successfully
transformed Cupertino into his own Willy Wonka factory. It’s time for
investors to more fully understand what this means for the stock.

As I explain in my book, The Alpha Hunter, mystery is a powerful
catalyst for movie production, but it has a powerful effect on
investing as well. In the absence of company press conferences and
official statements, rumors fill the vacuum of silence. When was the
last time you went to the Apple website to find news about the
company? Probably never. Instead, investors flock to Apple rumor
sites and hang on every word that comes out of an analyst’s mouth.
Analysts have become the official spokesperson of Apple.

What are the unintended consequences of this backwards PR structure?
It means that people with conflicts of interest can move the stock in
the short run. By my estimation, 6 of the central stock drivers over
the last 4 months have all been based on unknown rumors that appear to
be false. But because Apple never comments on news, the stock reacts
to each and every one. Hedge funds take advantage of perceived
vulnerabilities that originate from the rumor machine and individual
investors are left scratching their heads in confusion. Because of
secrecy and the resulting lack of transparency, the rumors from
unofficial spokespersons move this stock like no other.

Do you think Steve Jobs is going to read this and say, ‘Schwarz is
right, we need to provide more investor transparency!’? Not a chance.
So what should investors do about this stock that is a victim of the
wild west? There is only one thing you can do. Invest for the long
term. Anyone who owns short term options or who is trying to make a
quick trade is at risk of the unintended consequences of secrecy.
Rumors can strike this company on any given day for good or for bad.
You need to rise above the noise and allow the fundamental growth of
the company to properly value the stock over time. In the short run
positive uncertainty will cause a stock to soar; negative uncertainty
will cause a stock to plummet. But in the long run, the stock will
price itself based on the success or failure of the iPhone, the Mac,
the iPod, the App Store, etc...

Disclosure: long AAPL