If You Sold Your Apple Stock In October, You Were, In Fact, An Idiot

[Spartan]

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On October 19 of last year I wrote a post entitled: [url="http://techcrunch.com/2011/10/19/apple-laughing-stock/"]If You Sold Your Apple Stock Today, You’re An Idiot[/url]. Because their Q4 numbers [url="http://techcrunch.com/2011/10/18/apple-q4-2011-earnings/"]missed[/url] Wall Street expectations, Apple’s stock dropped over 5 percent on that day, to close below $400-a-share after hitting an all-time high just days before. My argument was that it was the Wall Street expectations that were horribly flawed, not Apple’s actual performance. And the stock would recover quickly as a result leading up to their Q1 earnings, which even Apple was predicting would be a blow out.
Reading the comments on that post — which I love to do — you’d think I was saying something insane. When the stock fell to $363 right after Thanksgiving, a few remembered the post and once again pointed out the irrational insanity of this fanboy. But then a funny thing happened yesterday. Apple’s stock closed at a new all-time high.
So yes, if you sold your stock on October 19, you were, in fact, a moron. We’re now two and a half weeks away from Apple’s Q1 earnings — and again, all indications are that they’re going to be massive. Apple CEO Tim Cook is already on record predicting record iPhone and iPad sales, and those prediction both seem solid right now. The real question is by how much will they be records?
Apple’s previous record for iPhone sales was 20.24 million in [url="http://techcrunch.com/2011/07/19/apples-big-q3-2011-earnings/"]Q3 2011[/url]. If Verizon’s numbers are any indication, it looks like Q1 could see total iPhone sales north of 30 million — and possibly well north. Given that the iPhone is by far the most important product to Apple’s bottom line these days, that could mean not only the first $30 billion quarter in company history — but the first $40 billion quarter as well.
Do those sound like numbers for a stock you should have sold because analysts failed to do their homework? No they do not.
Of course, hindsight is 20-20 — except that we wrote about all of this on October 18, the day before the sell-off.
For a great explantion of why professional Wall Street analysts are so often off the mark when it comes to quarterly predictions, be sure to read this post by Asymco’s Horace Dediu. Here’s the main point:[indent]
Analysts have an incentive to put forth a version of the future that supports their call on the stock. Bloggers have an incentive to put forth the most accurate version of the future. By taking the prediction out of the picture, accuracy in describing the future improves.[/indent]
Analysts often lower their own numbers to ensure their calls are not only right, but pleasantly surprise investors. That explains the past decade of Wall Street being wildly inaccurate with regard to Apple. Apple has been killing it, so when analysts think they’re being cutely conservative to make their calls look good, they’re actually being way too conservative. Except for last quarter (Q4 2011), where they simply missed what was happening due to the shift of the iPhone introduction from Q3 to Q4 (in other words, instead of Q4 sales exploding as was the case in the past, Q1 sales were going to). They got lazy and screwed the pooch.
But this quarter should be a return to form. Burned by last quarter, some analysts may even be a bit more conservative than usual. But Apple’s numbers will not be. And that’s exactly why it was the wrong call to sell your Apple stock in October. But on the flip side, if you bought the stock at the $360 price, you’re really happy right now.