Speaking of Apple…
By Michael on Feb 24, 2005 in Stock Market
How strange that just after posting that I don’t see Apple as a short I read an article laying out the bear case. Ken Kurson wrote the article, entitled “iPod, iTunes, iSell: Time to Short the One You Love”, for the March 2005 issue of Esquire Magazine (The article doesn’t appear to be online but its on page 112 of the mag). Kurson runs through the numbers and the story on Apple’s resurgence then proudly announces that he’s short AAPL at $65. His reasons all seem logical yet he’s down 37% right now, assuming he’s still short. He seems pretty convinced that he’s right, but as we all know the market’s aren’t about being right, they’re about making money. Ken made no mention of what it would take for him to be wrong and cover his trade at a loss. Nor did he mention where he would cover at a profit if the trade went (goes) his way. If he’s still short, and let’s say he wanted a risk/reward of at least 2-to-1, Apple would have to damn near go bankrupt for his trade to be work out.
I just wonder how much pain he’ll accept before covering. In his article he says (emphasis is mine):
If Apple is worth the $65 or so it was trading for at the beginning of the year, then why not $100 Why not $200? In fact, when a stock takes off on the back of its hot product, the best thing to do is to bet against it. But remember: Fighting the tape takes balls, a big bankroll, devoted attention, and a lot of luck.
Hoping to prove I have all four, I’m short a bunch of AAPL at $65.
Here’s why it takes balls. First of all , remember that shorting any stock is inherently riskier than buying it long, since your downside is unlimited…
Oh boy! Is it any wonder that AAPL keeps going higher. No doubt many a short is getting forced out of it on an almost daily basis. The idea of shorting something solely because it’s running due to a hot product seems like financial suicide. That flies in the face of what William O’Neil teaches. New (and hot) products are a key thing to look for in long candidates.
As for fighting the tape, he forgot to mention “a high threshold for pain.” Ken sounds like he’s a glutton for punishment and is out to prove that he’s smarter than the market. If you have to short AAPL to prove you have balls….
Finally, as I always have to do when I see the comment about shorting being riskier than going long, I must point out that shorting is only riskier if you allow it to be by shorting thin and/or volatile stocks, or by not adhering to any kind of risk control plan.
Tags: Apple Computer Inc. (AAPL), hot_products, iTunes, Short Selling, shorting, Short_Squeeze
6 Comment(s)
By Liz L. on Feb 25, 2005 | Reply
Ken Kurson writes entertaining copy but gives crappy advice. Years ago, when I was new to buying stock, I followed his dramatic advice to buy eloan.com at $70 (something like “if you buy one stock ever, it should be this one”), which immediately began to run straight downhill. (It’s now in the neighborhood of $3.) So I would NEVER listen to his advice.
By Michael on Feb 25, 2005 | Reply
Liz,
It’s funny that you mention his E-Loan call b/c he has a side note about E-Loan along with the Apple article. Apparently he reccomended it again when it was at $2. When he wrote the note it had risen to $3.66. He says that it could be acquired for $6 to $7.50 and if that happens and you still own the shares that you bought at $2, that should ease the pain if you also bought when he suggested buying the IPO.
LMAO That’s one hell of a scenario
By demnuts on Feb 25, 2005 | Reply
still apple seems more a short play than a long, if it does hit 100, I may buy some puts, which are high priced right now, but I just don’t have the balls to short out right.
By demnuts on Feb 25, 2005 | Reply
also I found carl swenson is not impressed with aapl
this link from stockcharts.com
http://stockcharts.com/commentary/archives/cww20050219m.html#carlswenlin
By Ken Kurson on Feb 27, 2005 | Reply
Liz, I’m glad you think I write entertaining copy, but I didn’t recommended E-Loan at $70. I bought it at IPO at 14 and as I detailed in the column to which you allude (Esquire, Nov 99), it had gotten way ahead of itself. Yes, even recommending it at $14 turned out to be a bad call. Hopefully, no one expects a monthly column to be a source for market timing advice. But unlike the thousands of buttheads who write about stocks and never hold themselves accountable, I revisited that pick, took full responsibility for it, and as Michael observed, thought through the story with a much better call. You win some, you lose some — where were you when I recommended shorting Tyco pre-arrest or buying Doubleclick before it quadrupled? Yes, I’ve made my share of bad calls. We all have. But when I was publishing my real-money, real trade portfolios, I consistently beat the market.
As for Apple, I’m hanging in there short and will until 100 (50, now that it’s split). And I had lunch with the former CEO and new CEO of E-Loan on Wed and remain committed to the stock. KK
By Michael on Feb 27, 2005 | Reply
Ken,
Thanks for the note. I’m glad to hear that you do have a breaking point on that Apple trade. Given that your columns are monthly, perhaps you should include info about when/where you plan to exit.
As for E-Loan, If you rec’d it at 14 and it went to 70, I’d hard hardly call that a bad call. People could have easily gotten their initial money back, and then some, had they sold just a portion on the way up to 70. People who rode it all the way up and back down to 2 can only blame themselves for poor money/trade management.