Below is a chart from Yahoo! Finance displaying the sudden move in Apple Inc. (NASDAQ:AAPL)’s share price.
Source: Yahoo! Finance.
After the move, several websites offered explanations as to what had caused Apple Inc. (NASDAQ:AAPL)’s sudden volume spike, the most common being a rumor that Apple Inc. (NASDAQ:AAPL) was readying a special, one-time $30 dividend. However, most of those explanations relied on such ironclad backing as random tweets. It’s difficult for me to fathom that hundreds of thousands of Apple Inc. (NASDAQ:AAPL) shares are moving per minute on tweets.
Explaining the arbitrariness
Apple Inc. (NASDAQ:AAPL)’s erratic trading is all too often blamed by investors on some sort of market manipulation. I think that’s counterproductive. Within the last quarter, hedge funds with vast sums of assets under management were dumping Apple Inc. (NASDAQ:AAPL). Whatever the reason — whether the funds were trimming an outsized position or selling on fears of Apple Inc. (NASDAQ:AAPL) being unable to maintain its sky-high margins amid Android pressure — those funds dumping their positions put a lot of downward pressure on a stock.
Once sell-offs start, they can build upon themselves for reasons not entirely rational over the long term. For example, analysts have been tripping over one another to trim estimates of how much Apple will earn over the next couple quarters. That’s probably a smart move, as recent estimates have looked too high. However, Apple Inc. (NASDAQ:AAPL)’s value isn’t predicated on what it’ll earn this quarter or next but over the next decade.
From that perspective, Apple Inc. (NASDAQ:AAPL) could face some easier year-over-year quarter comparables at the tail-end of the year when it doesn’t need to be judged against exceedingly high margins from the year before. Challenges in the next quarter or two may or may not reflect how challenging longer-term issues are. Yet, with Wall Street research firms frequently getting the juiciest press and attention for “supply chain checks” and other news that’s supposed to gauge short-term sentiment, few want to be stuck recommending a company that “the herd” is moving against.
In the end, there’s money to be made in the stock market not by arguing over unknown reasons companies are behaving in the short run but instead by buying great companies when they’re cheap. Apple Inc. (NASDAQ:AAPL) bear Jeff Gundlach recently took a victory lap, proclaiming Apple Inc. (NASDAQ:AAPL)’s recent plunge debunks the efficient market hypothesis, which holds that markets are “informationally efficient” and outperforming is random chance.
I suppose you could look at it that way. Or you could look at it another way: Apple Inc. (NASDAQ:AAPL) moving down 6.4% on a day with little news, or moving dramatically upward today with such little news that market commentators are pulling out tweets to explain its relevance, strikes me as more of a condemnation of markets that are informationally efficient and rational.
Apple Inc. (NASDAQ:AAPL) can be as “inefficient” on the way down as it was up. Judging by its wild recent trading, I doubt a purely rational view of Apple’s fundamentals is driving its share price at today’s levels.
The article Apple Keeps Trading Like a Penny Stock originally appeared on Fool.com and is written by Eric Bleeker, CFA.
Eric Bleeker, CFA has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple.
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