Seeking Alpha

33_Alpha's  Instablog

Send Message
I am a programmer, a researcher and a computer scientist on artificial intelligence. My past lives include working on two startups, two universities and one industrial research institution. I have been trading since 2004. Researching stocks is my hobby as well as an important source of income.... More
View 33_Alpha's Instablogs on:
  • Why People Say What They Say About AAPL

    Apple is an interesting stocks to own. Quite frankly though, it might be too hot lately. Many people, probably just like me, got hurt pretty badly for buying the stocks at its height: $700. So there are batch of my stocks are in red. Ah...... Life!

    Yet I still sleep well and read SA from time to time. If you were new or uneducated in stock trading, reading SA articles would be a frustrating/surprising experience. There are always people tell you are wrong. So, it's important to understand why people say something before you start to believe.

    SA authors

    First thing to remember, SA authors get pay per views. Most of them write an Apple article because there are tons of views. Currently there are 130k people who got updates from Apple. Is it the largest group in SA? Probably so. In my experience, the next largest one is SPY, because of the recent popularity of index fund ETF.

    When a stock goes bull, stock bloggers/authors love to dig up success story of a stock and become bulls. At the time when Apple was $700, many people are arguing Apple will go to $1000. Some of them own(ed!) the stocks so obviously the would say so. Some of them don't own the stocks, they said so because the stock was popular and they can get views. There are exceptions of that economics. e.g. I think Bill Mauer is pretty good at his stuffs. But those are exceptions. Many of the authors are opportunists. So following their advices to buy was quite silly.

    On the other hand, when a stock goes bear, "Time to lash Apple!" and you can see everyone becomes genius on their predictions. Some said "they predicted a year ago Apple would go down". Once again, the reasons are mainly for clicks, rather than an investigation of truth. If you solely follow their advice, once again, you are making pretty big mistakes.

    Apple Fans

    If you follow Apple, you know Apple has a big fan group. Many of them are fans of Apple for 5, 10, 20, 30 years. So their technological analyses are usually biased towards Apple. When Glass came out, they said, "Glass will not be popular" but when iWatch came out, they will scream "iWatch has huge margin 70%, 80%, 90, 100%!".

    So if you just read this group of people for Apple information, OMG, you are certainly very bullish about Apple. Now, do you know that Samsung's Galaxy ad was making an impact on Apple? Do you know Samsung has doubled up last year? You probably miss those information.

    Apple Haters

    Hmm. Android fans, Kindle fans, Galaxy fans, Glass fans. Once again, another group of people who doesn't care how a company runs. They just want their platform goes up. If they were developers on one of these cute devices, they will be benefited. Most of all, they got the bragging right as well!

    But do you know Apple still has EPS growth ytoy? Do you know the true story of how the earnings was counted differently in Apple (13/12)?

    Technical Guys

    Some of the silliest persons I know of are very into technicals. RSI? MACD? Moving Averages? From that point of view, Apple is still going to go way down because the chart said so. When they got their prediction right, they self-celebrated and let people know. The other silly people then also follow them.

    Technical guys are your real-life palmists, astrologist, numerologist. Just go to read their classic, "Technical Analysis" by John Murphy. You will realize it is not much different from Cheiros's "Language of Palm". In general, the future is a kind of randomness which is very hard to be consistently predictable.

    Growth Guys

    They are pissed! How come Apple doesn't growth as much as they predict? Why it doesn't grow for 20,30,40% and 0%? (As I said, it's due to 13/12 weeks difference. so the number is around 15%) Why Apple let Samsung compete at all?

    Who are the growth guys? Believers of Peter Lynch, Soros. Hedge fund managers. Or funds which labeled as growth. Apple was obviously a growth stock.

    But then, when you think about it, their demise is predictable. When have you seen a stock grows forever? So one day Apple would go down and some people is destined to feel unhappy.

    Now, over the last 2-3 years, there are many people belong to this group. In 2013, their collective regret will continue to drag the stock down. In 2012, the volume of Apple traded was approximately doubled of 2011 or 2010. So what we are experienced right now are simply the shock wave generated by growth people who sell their stocks in panic.

    So how do I know funds are leaving Apple? Look at the "Institution own" field in a quote. Around a year ago, Apple was 73% own by institutions, now is only 64%.

    Value Guys

    They are excited. Apple starts to pay sizable dividend (now ~2.5%) and its P/E is much lower than their peers (Google, Intel, Microsoft and not to say Amazon).

    Yet, Value guys has their concerns. They say, "Look at Seagate!". True, Seagate (NASDAQ:STX) 's P/E is 6-7 right now, but it doesn't really go up until recently. So Value guys, just like Growth guys, are circumspect as well. But their mantra is that "it's lovely to buy quality stocks in a low price". So, they are probably just waiting.

    Another concern of Value guys, Apple, unlike Exxon Mobile, Coca Cola or P&G, is not selling consumer staples. This particular factor makes man value guys hesitated. Many still decide to enter perhaps because the brand value. (No kidding, who doesn't like to be called with a fruit name?)


    * 01011110000001110001110000

    * "It is all about random walk and I am going to use whatever method works in backtesting."

    Index Fund Guys

    * With English accents: "Efficient Market Hypothesis is well known to be the TRUTH of the market. I am SURPRISED that so many people are still trying to do stock selection. " Bogle and his readers. Ben. Graham when he was old.

    They have a point, being defensive using index funds doesn't hurt. I hope every reader here has at least some portion of their portfolio in good index funds ETF (e.g. SPY) or mutual fund (e.g. Vanguards family)


    The sad thing about Wall Street Analysts is that their dynamics are very similar to SA authors. Their main job is to get more clients to buy stocks. If the reports sounds optimistic, why not?

    Option Guys

    You might hear about the tragic situation of Andy Zaky, he lost up to 400k of his BullCross clients money. Being an Apple fan as well as in love of high risk was a dangerous combination. They are lovely bunches, and they always have a strategy for you.

    Cover calls is okay. It is a technique which reduce risk. Many others, you probably need to understand Black-Scholes formula before you know what you are doing.

    Don't follow them unless you do know what you are doing. Reminder: many people think they understand, but they don't.


    I have been buying Apple since 2010 through a kind of dollar cost averaging scheme starting at the price point of 220. I hadn't become super rich because I hadn't commit all my money. I also hadn't become Andy Zaky who lost his shirt in the game. I ended up having a modest return when I look at my stocks now. No IRR number but I believe it is poorer than S&P.

    Let me back up a little bit though? Am I doing silly things? Nope. My portfolio has 60%+ index funds, I also have assets to balance my stock portfolio. Buying Apple is my conscious move to embrace more beta and get more return. So even though some of my apple was gotten in 2012 at $700 and it drops for 40%. Who cares? It's only a tiny portion.

    But this is probably not the situations for many of you. If that's the case, time to rebuild your portfolio. Don't trust your instincts too much. Stock picking could be something risky. You almost always want to "de-risk" it by technique such as dollar cost average. Also don't go into derivatives unless you know what you are doing and you have enough capital.

    As for me, I am happy with my Apple positions now, I will buy more when it goes down to $250, $150 or even $100 and up to $600, $800 and $1000 unless I hear any scandals in management or any bad decisions were made.

    Also if Apple becomes a pyramid scheme (just like ???), I am going to dump it as well. Oh! I am just joking, Apple is making sh*tload of money. They might be slowing down (for this year) but it doesn't look like that's the case. Given that I decided to accept the beta (risk), buying them is such an irrational decision.

    A kicker: I also don't know who I am from the above cases: Am I a value guy/growth guy? I also don't know the right timing to buy Apple. Sorry I can't predict them. So here goes dollar cost averaging. It's time-proven way to reduce risk. Sounds good to me.


    So why am I telling you all these? Do I get any benefit out of it?

    Nope. I am not an SA, theStreet author. And hey I only do it for fun. My investment advice can be good or bad. In fact, perhaps the only positive reasons why I write this up, is that I got a bad cold today and have nothing much to-do. All these knowledge are basic mathematics, investments and psychology. Hopefully, you enjoy it as I do.


    Disclosure: I am long AAPL, GOOG, YHOO, SPY.

    Mar 06 9:16 PM | Link | Comment!
  • Five Intellectual Sloppiness Of Mr. Market

    That's a strange feeling I want to share: I am an AAPL long but I have been sleeping well last two nights. I look at the red figure on the quote. It goes down again. I know many people feel pain. I feel some but after consider the situation for a while, I don't feel any.

    If you are curious, here is why. Mr. Market was not thinking intellectually in the last two days. But surprise! it never did. Not before we got our positions in Apple, and will never be in future.

    People who bash themselves now is in a certain kind of trading mindset. Yes, if you think in this way, Apple is a bad speculation. It's filled with emotion now and it makes it even harder to decide the direction of its stocks.

    But for a long term guy like me, thinking in the time-span for 5 years. There are much intellectual sloppiness with Mr. Market right now and I want to exploit them. Some will describe that I might have a confirmation bias. But again, if I don't care about Mr. Market , why do I care what some are thinking?

    So let me go ahead to name three of these sloppiness.

    The first intellectual sloppiness is to say Apple is following the pattern of Microsoft and Cisco in the past. If you look at the shape of the charts, yeah, they look the same. But once you think the next 5 years, you will notice a very important difference: the valuation of Apple is much lower. So let's just say the statement "all tech. giants are going to fall a period of time before it goes up again" is right. We should expect Apple has a shorter recovering time. Simply because the initial condition is different.

    The second is to compare Apple with Seagate, then imply that is a bad thing. This argument, comes from Michael Fu, is mainly from his self-bashing of losing 20% in Apple.

    First of all, Seagate is sort of nice, harddrives are still on demand, not on the laptop market but the server side, enterprise market. Because of big data, they need tons of disc space. So Fu's argument, actually make me want to buy some Seagate as well.

    Then, there is "oh, P/E can actually get compress to 6, are you scared now?" Nope. Even if that is the case, Apple was going through that kind of history much more rapidly. So let's say we really talk about the P/E go to 6. (i.e. $300 /share), you would expect the whole company recover more rapidly than Seagate, especially given the cash the company has.

    Also..... another important point here you should consider. Let's say Apple is following the Chartist Y's Z pattern and goes down indefinitely. What is the point that it doesn't matter if you own Apple or own Cash? Well, for now the answer seems to be around $140 because every share of Apple worth $140.

    Of course, this type of book value consideration is dangerous because you never know how the company condition has changed. But in the case of Apple, are we sure we see any bad management, shenanigans? I don't, so I can only feel happy when it really goes down to $140.

    The third is to believe in Amazon more than in Apple. Once you look into the business of both Apple and Amazon, you can only conclude that both are secretive and you must admit we both don't know too much. Some how, the Market seem to believe the Amazon will have a way to increase margin at will. So the Market decides to pay more premium for it.

    Cash is king, it is a powerful weapon which allows dividends, stock repurchase happen. Apple has $130B, Amazon has $5B. To wear future problems, I count on cash, but not how Mr. Market think.

    The forth is to believe Apple is not well-run. For all indications, it seems to be a more predictable company financially given Tim Cook is at helm. The wrong people (Forstall, the retail guy) were gone, the right people is promoted (Ive). Secrecy was maintained (The security leaked product information was let go). So we are still looking at the Apple we know: secretive, hard to predict and up-and-coming.

    Another thing what Cook has been telling us is soothing:

    "The most important thing to Apple is to make the best products in the world that enrich customers' lives. That's our high order bit. That means that we aren't interested in revenue for revenue's sake. We can put the Apple brand on a lot of things and sell a lot more stuff, but that's not what we're here for. We want to make only the best products."

    That is always the true moat of Apple and it hasn't losed it at all.

    The fifth is to believe the market price is an indication of a company health. If you are into short-term trading, you would think what I am saying is hearsay. But I am talking about 5 years, so all my arguments are all about value-investing, which is very different from the usual growth-investing you used to on Apple. As a value guy, you should notice that Apple has valuable assets tangible and intangible.

    It's balance sheet we don't need to talk more. For the intangible part, has great brand-value. You should also notice that a lot of kids want to use Apple. It's not going to change. So if you are into brand such as Gap, Levis, Coca-Cola and believe those are long term buy. Then Apple is for you.

    It also has great ecosystem. What that means is that is not just locking customers in a certain environment. But also allow new type of device to be incorporated.

    * * *

    So what am I going to do? It will sound desperate to some of you but here is my strategy: I am going to implement certain kind of dollar-cost averaging on Apple. Here is the interesting part: I predict in short-term, the stock is going down but my strategy is to buy more.

    In particular, provided the company is in its healthy state, I might buy a little bit more if Apple's price goes down to $300 (33% down from now), $225 (50% down from now) and $150 (66% down from now).

    Here is why I want to do this. For the dollar-cost averaging part I have been holding the stock since 2009. I bought some every year. So this is just my routine strategy anyway.

    Another reason is this : I too cannot foresee when Apple will recover. Given that I cannot predict timing, I decide to spread the risk across time.

    For the price point: $300 is when Apple goes down to around P/E = 6, $150 is approximately the cash Apple has. So in a way, I am prepared for the worst negativity from Mr. Market.

    Also, I decide to hold Apple for a while. In the past, I did consider the stocks in 2013 or 2014. For now, I am thinking of holding it for another 5 years. The reason, as I said at the beginning, is that Mr. Market is being irrational on the stock. Mind you, it can get worst! If you see such an irrationality, that's a signal to buy. I expect it will be a long process but it would be a profitable one.

    So you may ask...... eventually, would the rational guy, Mr. Value won over in my life time? (Probably another 25 to 30 years.) I don't know. What I know is being lucky/unlucky in short terms is uncontrollable process. Being lucky/unlucky in long term when time tends to infinity, it's something predictable. The health of a company would give you a clear indication. In the case of Apple, I can only see a well-run, innovative company filled with possibilities. That's why I am making such a decision.

    The final question you may ask is "Is it because you got stuck with Apple, so you turn from a growth guy to a value guy?" I ask myself those questions as well.

    It lies on Sloppiness #1: Apple already presents itself as a P/E=10 company to me. Let's say if I bought MSFT or CSCO at P/E=50, but I decide not to sell, I think I was having a confirmation bias. In those cases, keep on buying when stocks price plunge are ..... really sucker bets.

    On the other hand, you can observe how P/E look like for Apple. The transition is smoother, as well as it goes to a kind of profitable stage eariler than cases such Seagate. So now the question is whether you want to buy it for Value? As I have been buying the stock already, it just seems natural to go on.

    So let's see how it goes.


    Disclosure: I am long AAPL.

    Tags: AAPL
    Jan 25 12:39 PM | Link | 2 Comments
  • If Apple Fell To -$100 Today

    Let us do a thinking exercise: suppose after earnings today, Apple goes down to -$100. Or P/E equals to around -2. Yes, P/E doesn't go to negative. Also let's say if it go to negative is because the earning is negative. But let's say you play along.

    So the cap size becomes something like -$90 billion. You realize you lose quite a bit of money. But let's say you don't look at your asset for the moment. Just look at the numbers from earnings. Would you conclude that Apple is sinking? Would you decide to sell all your Apple stocks? Apple is doomed? "Apple's empire is falling apart?"

    More importantly, if you own the stock, someone needs to offer you $100 per share. Would you accept that deal? Or would you say "Apple is doomed, it falls for 120%, it *only* has $130 billion cash, it *only* makes ~$50 per share. So I am not going to accept the ownership of this forsaken company!"

    I am sorry bears, if I were you, I would run to get more Apple stocks.

    Now translate all these to real-life. Of course, Apple didn't drop to -$100, it drops for 10% AH. Effectively, it means P/E = 10. Forward P/E =~ 8.

    So...... it is cheaper than McDonald (17.6), Coca Cola and oh.... P/E of S&P (17).

    Once I think in this way, the current pessimism of Apple is uncalled for. Not to say it is paying dividend.

    The truth is if you invest a company for long term, you don't really care too much for its short-term variations. Unless you can derive something bad is happening in the company. But I fail to see one, are there any shenanigans from managements? Do they fail to have a valid business models? Do they fail to make money? Are they overpriced? Those are factors which matter to me when I do long term investment.

    Some ask how "long term" is long term? If you ask me, let's say 500 years.


    Disclosure: I am long AAPL.

    Tags: AAPL
    Jan 23 11:22 PM | Link | 2 Comments
Full index of posts »
Latest Followers


  • My 12 Followers: thanks for following me. One day I will write a good SA article and share all my thoughts on stocks and investments.
    Mar 22, 2013
  • Before $YHOO took off last year. This is how I view its problem. I am glad that Mayer was taking the advice
    Mar 22, 2013
  • Getting sick, so I wrote an article on Apple for fun. "Why People Say What They Say About $AAPL"
    Mar 6, 2013
More »

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.