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Huge selloff by hedge funds bruised Apple stock in the winter quarter

post #1 of 33
Thread Starter 
Disclosure documents filed today with the Securities and Exchange Commission clarify that Apple's falling stock price over the winter quarter was tied to the widespread selloff of over a million shares by just seven large hedge funds.

AAPL stock


After reaching an all time high of $704 on September 21, shares in Apple tumbled downward more than 24 percent, hitting a low at the end of 2012 at $509. After some recovery in the new year, shares fell again after the company announced record earnings, hitting a 52 week low of $435.

Panic or planned?



While observers like to attribute the dramatic drop to a "loss of faith by investors," the actual catalyst is now known to be a more calculated, rational act by a few hedge fund managers with very large holdings.

A noted in a report by Reuters, hedge funds' quarterly disclosure forms filed with the SEC reveal a series of massive, billion dollar liquidations during the quarter.

Puzzlingly, however, even the report itself described Apple's stock drop as coinciding with voiced "concerns about increasing competition and declining profit margins" and offered the explanation "the shares also may have dropped because their price rose too much, too fast."

"Three months from now, we'll be seeing a lot of the people who sold starting to pick it up again."An unconnected thought presented later in the report notes that "despite the plunge in Apple's stock price, most of the managers likely exited their positions with substantial profits because they bought years earlier."

It also cited Justin Walters, the co-founder of Wall Street research firm Bespoke Investment Group, as saying, "three months from now, we'll be seeing a lot of the people who sold starting to pick it up again."

Four funds that sold 796,000 shares worth



The report outlined that Leon Cooperman's Omega Advisors fund "dumped its entire stake of more than 266,000 shares during the fourth quarter."

Eric Mindich of Eton Park Capital Management dumped all its shares in Apple in the fourth quarter; it held 250,000 shares at the beginning of that quarter.

Thomas Steyer of Farallon Capital sold 137,000 shares, while Barry Rosenstein's Jana Partners "unloaded its entire Apple stake of more than 143,000 shares."

Next to a stock photo of a rotting Apple, Julia La Roche of Business Insider claimed that the four hedge funds' liquidation of Apple "is significant because the tech giant's stock is normally a hedge fund favorite."

Following the brilliant adage "buy low, sell high," any stock is probably going to be more of a "hedge fund favorite" before pumping the stock up and then liquidating it, compared to the period of decline following said liquidation.

At least two of the hedge funds began accumulating Apple's stock in early 2010, when shares were around $250, providing them with a return approaching 250% or more on those shares, if they were sold near the peak.

Other hedge funds trimmed some shares



The report ends by noting that three other hedge funds trimmed their holdings in Apple in the fourth quarter, but retained 73 to 82 percent of their holdings.

These include Philippe Laffont of Coatue Management, which retained 643,000 shares after selling 18 percent of his firms holdings; Chase Coleman of Tiger Global Management, which sold 19 percent of its holdings but ended the year with a portfolio including over 1 million shares of Apple and Julian Robertson's Tiger Management LLC fund, which cut 28 percent of its Apple stake, ending with 42,000 shares.

These three firms therefore sold off around 390,000 shares, while retaining more than 1,685,000, more than twice as many shares as those liquidated by the four firms that abandoned their entire positions.

In total, these seven firms reported sales of more than million shares, about 1 percent of Apple's total. If sold near Apple's peak, the sales would have resulted in the shift of $7 billion in capital. Those shares are currently priced at around $4.6 billion.

The shockwaves generated by those sales helped deflate Apple's market cap from a high above $650 billion to today's $438 billion.

Correlation is not causation



Last fall, Seth Fiegerman jumped on this massive stock price shift caused by hedge fund profit taking, to suggest that Apple's valuation drop was actually caused by the "cursed" release of iPhone 5.

The phone has since become the most popular model ever, taking top sales records in Japan and helping Apple take the majority of smartphone sales in the US.

With Apple's shares currently hovering around $466, all six of the firms are now free to buy back shares at about two thirds the price they commanded at their peak last September, and won't have to disclose the purchases until a month and a half after the current quarter ends.
post #2 of 33
See it not all bad, but selling at the high and forcing the drop and then buying back in when they force it low makes them lots of money, How many of these same funds also shorted the stock the the same time. It becomes a self fulfilling Prophecy.
post #3 of 33
So the tanking was pure and simple profit taking with these funds reaping huge profits while almost destroying AAPL. Any collusion involved in the sell off or was it purely coincidental? Of course, now that it's at a bargain basement price, these same funds will probably buy it again, pump it up, take profits and destroy the stock a second (and third, and fourth) time. This is not the way to run the financial market and allowing it is not the way to run the country or the world. AAPL was not too high, just look at its pitiful P/E.
post #4 of 33

The tyranny of the metrics. The funds needed to show overall high returns and how better to juice your averages but by selling the winners? Bummer for small investors who have their emotions tied up in watching the ups and downs but if you're a buy and hold investor you're not going to go wrong by sticking with the winners.

post #5 of 33
Re rob53: they did not "almost destroy AAPL", selling at a 52-week high is good business practice for any investor. In all likelihood, the trades were executed automatically through previously-set Sell Limit Orders. Plus, many if not all investment funds sell off their best performers at the end of the year to maximize profits, finalize taxes, etc. The only question now is how long it will take the stock to return to its previous level (Intel-Apple iTV, anyone 1wink.gif
post #6 of 33
This is the dumbest thing I've ever read. Apple bought back twice as much as these firms sold and the price still tanked. Plus the stock trades close to 20 million shares a day...every day. Selling 1 million shares over a quarter would barely be noticeable. Idiot reporting for empty heads.
post #7 of 33
Quote:
Originally Posted by tkell31 View Post

This is the dumbest thing I've ever read. Apple bought back twice as much as these firms sold and the price still tanked. Plus the stock trades close to 20 million shares a day...every day. Selling 1 million shares over a quarter would barely be noticeable. Idiot reporting for empty heads.

EXACTLY as you said it.  In a calendar quarter AAPL will do a total volume of 1.9 billion (90 days at 21M shares per day)...and they are calling out 1 million shares being dumped in a quarter?  That's ridiculous analysis.  

 

Even if you took out that 1 million shares from the market cap at $0/share you would knock AAPL's market cap down by about 0.1%...

 

The real answer is the broader market (institutional and retail) started selling off AAPL for a variety of reasons.  Whether it is priced appropriately today, should be back at $700+, or lower still, is anyone's guess.  

post #8 of 33
Okay, so you're confused by that? Consider this, On one hand you have funds selling 1 million shares and this article insinuates that's why apple tanked. Yet, appl trades about 20 million shares a day. Is it possible that suddenly everyone started selling, sure it is. Why, the media helped change sediment when appl missed its analysts expectations. Then the media began scaring everyone by touting the increased tax situation which contributed to more selling. Then the media, think wsj here, falsely printed an article about iPhone 5 production cuts. Then the media started writing about poor iPhone sales in china. The media also made a big hoopla about maps. Are you starting to get the picture? Once these hedge funds decided to sell they can easily influence the media which in turn influences the markets. It was a perfect storm of events that really enriched the short sellers. Now, once it settles down & dependent upon their next earnings report apple will either recover or tank. If you own a lot of shares like I do you had better buy a protective put before the upcoming April earnings report. The upside is huge, but the downside if they miss again will be equally ugly.
post #9 of 33
Quote:
Originally Posted by wubbus View Post

EXACTLY as you said it.  In a calendar quarter AAPL will do a total volume of 1.9 billion (90 days at 21M shares per day)...and they are calling out 1 million shares being dumped in a quarter?  That's ridiculous analysis.  

 

Even if you took out that 1 million shares from the market cap at $0/share you would knock AAPL's market cap down by about 0.1%...

 

The real answer is the broader market (institutional and retail) started selling off AAPL for a variety of reasons.  Whether it is priced appropriately today, should be back at $700+, or lower still, is anyone's guess.  

 

Thanks.  I'm so used to getting trolled for every comment I expected some kind of attack.  I figured it would sell off as people rushed to lock in the lower capital gains tax, but also thought it would recover once 2013 rolled around.  Of course the outlook for next quarter put an end to that hope.

 

Anyhow, thanks and good luck with your investments.

post #10 of 33

Agreed, this is stupid.  The average daily volume is over 21MM shares/day.  To think that the numbers presented in the article made any difference over a couple of months time is ridiculous.

post #11 of 33
But, 1M shares is a huge sell-off if done quickly, warping the price. Especially with robotic trading, a huge drop in price orchestrated by hedge funds would mean that those trying to sell for more would be able to only if they would meet the lowered prices. It's a mob psychology, "run on the bank" activity, not rational -- likely also the explanation for Apple's price being driven up so quickly. Investors sell/buy based on technical considerations not based on evaluation of a company's fundamentals.

Think of this sell off as a market correction, since the $700 price point was probably too steep as it was.
post #12 of 33
Quote:
Originally Posted by waldobushman View Post

... Investors sell/buy based on technical considerations not based on evaluation of a company's fundamentals.
...

I think what you are describing are traders, rather than investors.
post #13 of 33
hedge funds control the stock they are trying to get it as low as they can to buy in then it rushing to the top for a quick sell.. oldest trick in the game
post #14 of 33

Can anyone say "Fiscal Cliff"?

 

If you were an investor who had acquired a large number of shares when Apple stock was at a lower price, and you were concerned that there maybe an increase in taxes on capital gains, selling off your Apple stock and taking your profits before the end of 2012 makes a lot of sense.

post #15 of 33

Sad thing is the story is being picked up by news outlets that should know better.  Reuters and Forbes  to be specific.

post #16 of 33
A million shares? Who the hell cares?
post #17 of 33
Quote:
Originally Posted by wubbus View Post

EXACTLY as you said it.  In a calendar quarter AAPL will do a total volume of 1.9 billion (90 days at 21M shares per day)...and they are calling out 1 million shares being dumped in a quarter?  That's ridiculous analysis.  

Even if you took out that 1 million shares from the market cap at $0/share you would knock AAPL's market cap down by about 0.1%...

The real answer is the broader market (institutional and retail) started selling off AAPL for a variety of reasons.  Whether it is priced appropriately today, should be back at $700+, or lower still, is anyone's guess.  

It's not that simple. There's a lot of psychology involved.

For example, when word gets out that a firm that owned a quarter million shares dumped them all at once, other people are going to look hard. Even a single downgrade can have a significant impact on a company's price.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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post #18 of 33
Quote:
Originally Posted by GadgetCanada View Post

Quote:
Originally Posted by rob53 View Post

So the tanking was pure and simple profit taking with these funds reaping huge profits while almost destroying AAPL. Any collusion involved in the sell off or was it purely coincidental? Of course, now that it's at a bargain basement price, these same funds will probably buy it again, pump it up, take profits and destroy the stock a second (and third, and fourth) time. This is not the way to run the financial market and allowing it is not the way to run the country or the world. AAPL was not too high, just look at its pitiful P/E.

 

"Almost destroying APPL" LOL!!! Seriously!??? Are you forgetting how much profit Apple rakes in every quarter consistently? Correction "record profits". No hedge fund will ever destroy Apple.

 

Well... he did say destroy "AAPL", not destroy "Apple".

if it's in the interest of Wall st MMs to destroy a stock (or pump one up), they can do so. Corporate profits be damned.

post #19 of 33
Quote:
Originally Posted by Maestro64 View Post

See it not all bad, but selling at the high and forcing the drop and then buying back in when they force it low makes them lots of money, How many of these same funds also shorted the stock the the same time. It becomes a self fulfilling Prophecy.


If these funds really sold at the peak, then $AAPL would not have fallen so much. They made a very nice profit even at the "depressed" price near end of 2012 and early 2013 because they bought the shares some time ago at a price much lower than $460.

post #20 of 33

We don't need to stinking SEC report! Some of has been yelling through our guy that it is all the hedge fund managers who has been spoiling the real value of one great company! 

post #21 of 33
For perspective, this million share sell-off is smaller than what Fidelity sold:

In an amended 13G filing on Apple, Inc. (NASDAQ: AAPL), Fidelity parent FMR LLC disclosed a 4.41%, or 41,472,327 share, stake in the company. This is down 8.84% from the 45,494,145 shares held at the end of the latest quarter ending September 30, 2012.
post #22 of 33

I lost.

Citing unnamed sources with limited but direct knowledge of a rumoured device - Comedy Insider (Feb 2014)
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Citing unnamed sources with limited but direct knowledge of a rumoured device - Comedy Insider (Feb 2014)
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post #23 of 33
Quote:
Originally Posted by rob53 View Post

So the tanking was pure and simple profit taking with these funds reaping huge profits while almost destroying AAPL. Any collusion involved in the sell off or was it purely coincidental? Of course, now that it's at a bargain basement price, these same funds will probably buy it again, pump it up, take profits and destroy the stock a second (and third, and fourth) time. This is not the way to run the financial market and allowing it is not the way to run the country or the world. AAPL was not too high, just look at its pitiful P/E.

Makes one wonder about this suit to stop Apple from cutting preferred shares. Isn't it only really hedge funds and the like that benefit from such offerings and the higher dividends they get compared to common shares

post #24 of 33
Dear article author:

1 million shares @ $700 each is not $7 billion worth of stock, is it? I'm pretty sure that 700 x 1 million = 700 million?

You also state the current value of that million shares as being $4.6 billion, but again I think that's one zero too many.

It looks like your math is off by a factor of 10, unless I'm missing something?

Might want to fix that%u2026
post #25 of 33
Lets cut throughout the bs. The shares were sold to drop the share price. Period. They were shorted. A lot of people made a lot of money betting the other way.So all this convolution is nothing but smoke and mirrors for the uninitiated.
post #26 of 33
one million shares isn't that much if the sales are evenly distributed.
However, if you onload large chunks shortly before the market close, the closing price will register a sharp drop, which in turn scares the unsophisticated investors and benefits certain options trades.

There are older news reports about how a few massive stock sales shortly before the closing bell, knocked Apple down in stages. If you combine such sales with bad news, you can create the wrong impression in the minds of those who don't know what's going on.

If you know anything about how news works for the most part, then you know that you can buy just about any slant on objective news by paying off a few publicists.
It's hardly objective reporting when you follow how Apple's news have lately all been tinted in doom&gloom colors, even though the company keeps breaking just about any relevant record.

Now add in one more crucial point: the fact that last years quarter had 14 weeks, which happens every few years because the year doesn't have 49 or 56 weeks, but 52.
So all things equal, that alone would create an 8% drop in sales, revenues and profits, and since numbers aren't reported adjusted on a weekly basis, sophisticated investors who want to knock down the stock price know they have a rare chance of having numbers supporting their case, particularly if they know that the company itself already warned on a few minor number issues, like lower gross-margins due to manufacturing change overs on a variety of product lines. (which of course were reported before and already reflected in the stock price, but proper reporting can make any expected thing sound unexpected, allowing the market to reflect the same news multiple times)

So some smart people figured they want to not just realize profits, but make more on the way down. So they orchestrated their sales, did smart options trades and maybe helped it all by paying some well connected publicists to change the angle under which they report Apple news.

Can I prove it? No. Do many indicators point in that direction, yes.
post #27 of 33
Looking at the graph included in the article it would seem that shares bought at the beginning of 2010 and held, will have doubled in value by today. It also looks that if you project the curve through 2009, 2010, 2011 and through to today, you get to where the share values are about now. Using this logic, it looks like it was the spike in value in 2012 that was atypical and you could argue that taking the long view the shares are now back on track where they should be. This would also fit with Apple's recent more conservative projections for the quarter ahead........am I missing something?
post #28 of 33
Quote:
Originally Posted by Slicksim View Post

Looking at the graph included in the article it would seem that shares bought at the beginning of 2010 and held, will have doubled in value by today. It also looks that if you project the curve through 2009, 2010, 2011 and through to today, you get to where the share values are about now. Using this logic, it looks like it was the spike in value in 2012 that was atypical and you could argue that taking the long view the shares are now back on track where they should be. This would also fit with Apple's recent more conservative projections for the quarter ahead........am I missing something?

Yes. The fact that Apple's share price is far lower than it should be by any objective standard. When it peaked last summer, it was closer to a reasonable level (although still somewhat too low).

Look at P/E. Price/book. Price/Equity. PEG. Now, compare them to the rest of the market. For even more laughs, compare them to AMZN.
"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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"I'm way over my head when it comes to technical issues like this"
Gatorguy 5/31/13
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post #29 of 33

I hear what your saying.... and if true, and it would seem the stock exchange would beg to differ, then it would seem that with last years peak taken out of the equation, at least Apple shares have been consistently under valued.  I personally think the markets are still not convinced that Apple can innovate in the post Jobs era.  The obscene amount of money Apple is currently making is probably derived from products designed when Jobs was still with us.  If Apple can show innovation through this coming year (not just slimmer and faster) I think the share price will continue to improve.  Would it be so terrible if it "only" doubles over the next two to three years?

post #30 of 33
Quote:
Originally Posted by Rogifan View Post

Sad thing is the story is being picked up by news outlets that should know better.  Reuters and Forbes  to be specific.

Neither Forbes nor Reuters ever knows what they're talking about. They are PR generators. 

post #31 of 33
Quote:
Originally Posted by wubbus View Post

EXACTLY as you said it.  In a calendar quarter AAPL will do a total volume of 1.9 billion (90 days at 21M shares per day)...and they are calling out 1 million shares being dumped in a quarter?  That's ridiculous analysis.  

 

Even if you took out that 1 million shares from the market cap at $0/share you would knock AAPL's market cap down by about 0.1%...

 

The real answer is the broader market (institutional and retail) started selling off AAPL for a variety of reasons.  Whether it is priced appropriately today, should be back at $700+, or lower still, is anyone's guess.  

Actaully, it is more than 1M share in question. Apple trade on average around 15M to 20M per day, but on the days in question and when those hedge fund did their trades 40M to 50M share were traded these fund did not sell less then 1M share they sold a lot more than that. Their largest block of shares may have only been less then 1M share they could have sold multiply blocks over times. Also, people who watch the markest closely see they large block going they dump as well so it has a snow ball affect plus with automatic limit trading it forces more sales.

 

If Hedge fund has 10M share they do not sell them all at once an in one large block, they spread them out in various block sizes and time interval to maximize their total profits.

post #32 of 33
Quote:
Originally Posted by Maestro64 View Post

Actaully, it is more than 1M share in question. Apple trade on average around 15M to 20M per day, but on the days in question and when those hedge fund did their trades 40M to 50M share were traded these fund did not sell less then 1M share they sold a lot more than that. Their largest block of shares may have only been less then 1M share they could have sold multiply blocks over times. Also, people who watch the markest closely see they large block going they dump as well so it has a snow ball affect plus with automatic limit trading it forces more sales.

If Hedge fund has 10M share they do not sell them all at once an in one large block, they spread them out in various block sizes and time interval to maximize their total profits.
So who bought those shares?

Judging from the way they pushed down the price at open hour said a lot about shorts activity.

Yes many benefitted except the retail buyers who were left holding the babies.
post #33 of 33
As someone who doesn't own shares outside for superannuation this looks like such a yeehaw rodeo. Shares should represent an investment in a business. Minimum periods of investment should be measured in days, weeks or months, not nanoseconds. We have is millions of people spending their entire day trying to outsmart each other and chasing their own tails. The investment market doesn't actually produce anything but raw profit, skimmed from the superannuation savings of others.

How is that ethical?
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