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Sean Bellamy McNulty
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Sean is a FOREX Trader at CIBC World Markets on Bay Street. In terms of education, Sean has a Bachelor of Commerce Degree with a Major in Finance and Minor in Economics from the Sauder School of Business at the University of British Columbia, and while earning his degree he participated in... More
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  • A Word To Rocco Pendola About Apple And The Financial Media 6 comments
    Jan 16, 2013 9:17 PM | about stocks: AAPL

    Rocco Pendola, a former pundit at SeekingAlpha.com who has since moved on to TheStreet.com, published a number of articles this past Monday in response to The Wall Street Journal piece reporting that Apple (NASDAQ:AAPL) cut orders for iPhone 5 parts because of weaker-than-expected demand. Rocco's most recent article -- titled Something Is Terribly Wrong, Just Not With Apple -- opened with the following:

    Pardon my French, but with a few solid exceptions (they know who they are), the people who staff newspapers and Web sites that cover the stock market are lazy bastards incapable of or afraid to offer an original thought.

    He then called for The Wall Street Journal to be "taken to task, held accountable or whatever ends up necessary in this case" for the negative story on Apple.

    Keep in mind, this comes from a writer who believes that, "next to Jim Cramer and Howard Stern, I'm (Rocco) the most misunderstood man in showbiz".

    And what was Mr. Osawa's crime? Below are Rocco's seven main grievances from both Something Is Terribly Wrong, Just Not With Apple and, If the WSJ Is Wrong About 'Weak' iPhone 5 Demand, Will It Apologize to Apple?:

     

    1. Osawa lacks credibility, as this is the "first I (Rocco) had ever heard of him".
    2. Not identifying sources which "we've become so desensitized to that we no longer question the validity of statements such as people familiar with the situation".
    3. Osawa speculating on alternative scenarios looks like "damage control" to Rocco.
    4. WSJ used "weak demand or something to that effect in the headline" originally and then changed the headline. Rocco doesn't go on to say what part of this offends him, I presume it is something to do with sensationalizing the story.
    5. There was speculation about weak demand before the iPhone 4s as well. Again, Rocco doesn't specifically state why he is offended with this speculation, but from the rest of the article it appears is has something to do with reporters having "carte blanche to beat around the bush and leave readers/investors in the dark in the name of protecting a source".
    6. That newspapers shouldn't treat "other people's money with reckless abandon" with "half-cocked reporting" that "move a stock and (Rocco's italics) its derivative plays".
    7. TheStreet's tech geek and "Apple authority", Chris Ciaccia, thinks it's likely the parts supplier is seeing cuts in the January to March quarter because Apple's biggest quarter is the holiday quarter, its fiscal first quarter. To Chris, this article appears to be "pure speculation at best", which Rocco finds "logical".


    Rocco goes on to proclaim that "you shouldn't be able to (move a stock and its derivative plays) when the hard-earned money of retail investors is on the line", but doesn't provide any policy solution to this apparent problem.

    Rocco, Apple Is Not Holier Than Thou

    It is often thought that successful investing is solely about quantitative analysis and delving into research reports ensuring no stone is left unturned, but in fact it is not. The most important factor in determining whether you'll be successful investing is psychology. But don't take my word for it:

    Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.

    - Warren Buffett

    Don't be a hero. Don't have an ego. Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead.

    - Paul Tudor Jones

    What sets successful traders apart? Most people think that winning in the markets has something to do with finding the secret formula. The truth is that any common denominator among the traders I interviewed had more to do with attitude than approach.

    - Jack Schwager (author of Market Wizards series, a great read if you haven't read the series already)

    In addition, the chart below outlines the 14 Stages of trading psychology.

    (click to enlarge)

    Although Rocco often states that he is uncertain about Apple's long term future and that the company requires an innovative new product to continue its success, judging by the tone of his articles, it's clear that he takes is personally when any media outlet speculates mishaps at "clearly the world's best company". I'd say he's in-between anxiety and denial.

    Readers of this at Seeking Alpha can learn much from observing Rocco's violent reaction to a negative story about Apple. Namely, if you ever have this reaction, you're too emotionally attached to your stock. Take a step back to gain perspective on the situation, and if you find that can't get over your emotional attachment, hire an investment advisor or sell the stock. The market is a cruel mistress, and if you let her, she'll break your heart.

    Addressing Rocco's Grievances

    Rocco has made a career of writing about Apple. He wrote his first article about the company for Seeking Alpha on February 22nd, 2011, and from that time put out an immense amount of material on the stock. Below are his yearly output numbers up to when he wrote his last article for Seeking Alpha:

    February 22nd to December 31st 2011: 39 (1 article every 8 days)

    January 1st to May 23rd 2013: 38 (1 article every 4 days)

    Given this record of output, I was expecting a more substantial rebuff to Osawa than a rant on the "financial media". Unfortunately, his readers were left with Rocco's seven points outlined in the intro, which I'll address in its entirety below:

    1. Osawa lacks credibility, as this is the first I (Rocco) had ever heard of him.

    I was unable to find a biography for Juro Osawa, but he has been writing about technology for the Wall Street Journal since at least April 23, 2010. The first financial article published by Rocco was his article on Apple February 22, 2011, therefore it appears a better question is whether Osawa has heard of Rocco.

    Also, Rocco may want to read the WSJ technology section at times other than when a negative story is written about Apple.

    2. Not identifying sources which we've become so desensitized to that we no longer question the validity of statements such as people familiar with the situation.

    Contrary to what Rocco perceives as a societal drift away from questioning the validity of statements originating from anonymous sources, based on my observations society is drifting towards questioning the validity of all statements, especially those from anonymous sources. There is an entire segment of society that believes 9/11 was an inside job and the conspiracy theorist Alex Jones was just interviewed on a major television network as if his opinions were worth listening to. Clearly, questioning authority isn't a problem in America.

    In addition, Osawa's WSJ article's statements are specific, not vague, citing that Apple's orders for iPhone 5 screens for the first quarter have dropped to roughly half of what the company had planned to order and that "the company also cut orders for components other than screens".

    Unless Rocco is postulating that Osawa is making up conversations, it is clear that a discussion took place that was specific enough for WSJ to report on.

    3. Osawa speculating on alternative scenarios looks like "damage control" to Rocco.

    I had a professor who was a former reporter and often spoke nostalgically about the profession and the importance of the pursuit of the truth. During this pursuit, it is important to consider alternative scenarios for obvious reasons. Osawa doing this has nothing to do with "damage control".

    4. WSJ used weak demand or something to that effect in the headline originally and then changed the headline. Rocco doesn't go on to say what part of this offends him, I presume it is something to do with sensationalizing the story.

    There is nothing inherently wrong with changing the headline to a story, nor does it indicate anything sinister transpiring at the WSJ.

    5. There was speculation about weak demand before the iPhone 4s as well. Again, Rocco doesn't specifically state why he is offended with this speculation, but from the rest of the article it appears is has something to do with reporters having carte blanche to beat around the bush and leave readers/investors in the dark in the name of protecting a source.

    A filtered Google search looking specifically for news on the iPhone 4s and iPhone 5 yields the following results:

    iPhone 4s: 149,000 articles.

    iPhone 5: 145,000,000 articles.

    These 145,149,000 articles would have been written both before and after the timeline Rocco is speaking of. The point is, a product like the iPhone will receive massive amount of press coverage, both positive and negative, which doesn't amount to reporters having "carte blanche to beat around the bush".

    6. That newspapers shouldn't treat other people's money with reckless abandon with half-cocked reporting that move a stock and (Rocco's italics) its derivative plays.

    The last thing newspapers should consider is how their stories will affect the market. If they did, they'd be doing a huge disservice to investors. The reporting profession is about reporting, not speculating on how their reporting will affect speculators. Once the scoop has met a certain threshold, which will be at the point far short of 'perfect information', it ought to be published. Over time, the reputation of the newspaper will either prosper or suffer depending on where it sets this threshold. It is worth noting, the WSJ has done quite well over the years.

    With regards to "half-cocked reporting" that "move a stock and its derivative plays", given that Rocco is an author of an eBook about options, this statement is absurd. Derivatives are priced based on the stock price, hence the term derivative. A derivative's price changes with the stock price, not because a journalist targeted both stock and derivative plays.

    It may be time for Rocco to review the Black-Scholes Option Pricing Model.

    7. TheStreet.com's tech geek and "Apple authority", Chris Ciaccia, thinks it's likely the parts supplier is seeing cuts in the January to March quarter because Apple's biggest quarter is the holiday quarter, its fiscal first quarter. To Chris, this appears to be "pure speculation at best", which Rocco finds "logical".

    This is Rocco's most substantive point, which isn't saying much. Once Rocco got over his initial outrage at the financial media, he emailed the TheStreet.com's apparent Apple authority known as Chris Ciaccia. Chris went on to make the astute observation (after re-reading the WSJ article, of course) that Apple would sell more iPhone's during the Christmas season than after, thus it was expected for sales to drop off. Chris then went onto to conclude that is his view, this was "pure speculation at best".

    Chris may want to re-re-read Osawa's WSJ article, as the crux of the story wasn't that sales drop off after Christmas, but that they dropped off much more than expected, indicating either:

    • A. Not as many iPhone's were sold at Christmas as expected.
    • B. Due to initial market reaction, Apple lowered its iPhone 5 sales forecast.


    From The WSJ Story

    Apple's orders for iPhone 5 screens for the first quarter, for example, have dropped to roughly half of what the company had planned to order, the people said.

    The Cupertino, Calif., company also cut orders for components other than screens, one of the people said.

    Chris then goes on to contradict himself in back to back sentences, stating that:

    On Jan. 23, we'll find out how many iPhones were sold in the holiday quarter…

    Followed By

    But one would expect that given the robust demand for the phone (iPhone 5) after it was released, demand is likely to slow from the holiday quarter.

    So Chris, do we or don't we know the iPhone sales from the holiday quarter?

    And Rocco, this isn't "logical".

    Throwing Stones While Living In A Glass House

    Rocco opened his piece calling out the "lazy bastards" who write in the financial media and are "incapable of or afraid to offer an original thought", and went on to criticize the research being done by other writers. These are bold words coming from a writer of hard hitting, in depth articles featuring provocative titles such as:

    Something for Bored Apple Investors to Consider While Killing Time to $600

    Note to Apple Fans: Stop Talking About Value

    Apple Not A Buy-And-Hold Investment? That's News To Me

    Should You Put All Of Your Eggs In Apple's Basket?

    Why I Will Not Be Listening To Apple's Earnings Call Live

    Of the 77 articles written by Rocco on Apple, only one was picked as an editor's choice by Seeking Alpha.

    Why would a new writer focus on Apple? Because it has the largest number of followers at Seeking Alpha with over 92,000 people receiving an email each time an article is written about it. Therefore, publishing an article every four days on the company is great way to get noticed.

    Paradoxically, if anything is wrong with the financial media, it is not journalists like Juro Osawa who speak with sources on the ground and report their findings, but blowhards like Rocco Pendola who conduct little research, publish ad nauseam with provocative titles to boost their readership and have no expertise in financial markets but insist on offering advice.

    But despite being unimpressed with Rocco's work to date, there is no need for him to be taken to task, held accountable or whatever ends up necessary for his shoddy reporting. The beauty of the marketplace is that it is not only a market for capital, but a market for ideas. It's the best venue for minds to meet for debate and discussion, and one in which participants are held accountable to their views by an impartial judge.

    This is why websites such as Investing.com provide such an invaluable service. Their platform allows a variety of other market participants to participate in the debate, and allows investors to read up on views from people other than analysts in the research division at banks. Again, despite being unimpressed with Rocco's work to date, I'm glad there are forums for him to air his views, as well as forums to respond to them.

    I believe Voltaire said it best:

    I do not agree with what you have to say, but I'll defend to the death your right to say it.

    Apple And The Financial Media

    What Osawa was reporting on is not news to anyone; Apple is not the company it once was. As a recent convert from an iPhone to a Galaxy Note 2, there is no question that Samsung's products have eclipsed Apple in terms of product quality. This has been the findings of a number of reviews, and backed up by Samsung's growing sales numbers.

    In addition, a friend recently posted this question on his Facebook page:

    I've highlighted a few of the 44 comments below, which were heavily in favor of the Galaxy Note 2 (please add a mental sic where appropriate, the grammar on Facebook can be painful at times):

    "I have the 5, got my sis the note. She loves it n I want it so lol note!"

    "I don't know anything about the galaxy note 2 but the IPhone 5 is still so new that its really glitchy. And a glitchy phone is never fun. Good luck with ur decision."

    "Personally, I say go note 2. Stats alone destroy iPhone."

    "I have iPhone 5 but notebook is the superior phone."

    Although the Facebook post is anecdotal, Google Trends quantitatively backs up this shift in consumer sentiment in the data on searches for Samsung versus Apple:

    (click to enlarge)

    If the filter is narrowed to Apple phones and Samsung phones and limited to shopping searches, the divergence is even more drastic:

    (click to enlarge)

    And of course, Apple's stock price versus Samsung over the past year, the best indicator:

    In conclusion, there is nothing inherently wrong with the financial media negatively reporting on Apple, Osawa did a great job breaking an informative story. In addition, nothing that Osawa did qualifies him as a "lazy bastard", he hit the street and dug up a story through his contacts. This represents more financial research than Rocco has ever done in his little under two years as a financial commentator or his previous 12 years working in radio.

    As Chris Ciaccia pointed out, we'll find out January 23 if Osawa source was accurate. Time will tell if Apple goes the way of RIMM, but if the iPhone 6 is similar to the iPhone 5 which is similar to the original iPhone, they likely will.

    Often the biggest risk is not taking one.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Comments (6)
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  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Odd. We're talking about the same guy that wrote this? http://bit.ly/H8aiWh

     

    Not sure hanging out with Cramer is worth the $$$ if that's the personal change that happens. My 2 cents.
    18 Jan 2013, 10:55 PM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    Did you try publishing a portion of this as an article? There's a lot of good work here.
    18 Jan 2013, 10:56 PM Reply Like
  • Sean Bellamy McNulty
    , contributor
    Comments (235) | Send Message
     
    Author’s reply » I did Jon, unfortunately it was considered too personal for a regular SA article.
    19 Jan 2013, 03:09 AM Reply Like
  • Jon Springer
    , contributor
    Comments (4152) | Send Message
     
    I think if it was about Cramer or Najarian or someone on that order, it would be okay. But Rocco and Michael Gayed are pretty untouchable around here - guys who helped build the site - I kind of get that. Guess it would be hard to submit the same material without referring to Rocco directly... sigh.

     

    Really good work.
    19 Jan 2013, 09:03 AM Reply Like
  • Sheluvme
    , contributor
    Comments (104) | Send Message
     
    wow, what a hit piece. I don't mind you blowing up on Rocco, and you go through incredible effort to validate the WSJ reporting.

     

    However, your entire argument blows over the most important fact, which was point #4. The wall street journal jumped to the major conclusion, which was purely speculative, that the reduction in orders was from "weaker than expected demand".

     

    A number of factors could explain the reduction in orders for that one supplier:

     

    1. Apple is switching suppliers
    2. Apple is changing product mix (new phone / different type of screen from a new supplier)
    3. Apple knowingly over-ordered during ramp-up to make sure supply was there for roll out.
    4. Weaker than expected demand

     

    The source (a supplier), nor the wall street journal, could possibly know this was from "weaker than expected demand" so this is why people are pissed.

     

    All of your other points in this article is just "noise" so you can unleash your anger on Rocco.

     

    At the end of the day the WSJ article should have been retracted for their "weaker than expected demand" conclusion.
    20 Jan 2013, 01:05 AM Reply Like
  • updown364
    , contributor
    Comments (34) | Send Message
     
    I'll be following you from now on after this article because I "love" Rocco so much. Nice Job!
    13 Mar 2013, 05:58 PM Reply Like
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