After hearing the most recent commentary regarding Apple, Inc.,
I’m absolutely convinced that stock analysts, prior to hanging their shingle on
Wall Street, are required to attend The
Pavlovian Institute for Classical
Stock Analyst Conditioning. Here’s how I believe it works.
Prior to earning their credentials, stock analysts from Piper Jaffray, Credit Suisse, Bernstein, and a myriad of others, are taken to the institute, placed in a dark room, and seated in a chair. Next, they’re connected to a machine by a multitude of electrical wires attached to various parts of their body. Then, the stock analysts are asked a series of fill-in-the-blank questions, such as, “If you place an item on EBay, you’re attempting to _____ it. Of course, the analysts would say “sell.” With that response, a jolt of electricity would instantly surge from the machine to the stock analyst, delivering a nasty shock. Another question would be, “You’ve contacted a real estate broker to _____ your house.” Of course, the analyst would say “sell” and once again, it would trigger another rush of electricity. Normally, it takes three questions in order to condition the average stock analyst, which brings us to the final question, which is always, “What is the opposite of buy?” The typical analyst usually hesitates, and then grudgingly says, “s-s-s-s-s-s-s-sell,” at which point the final surge of voltage is administered. After this most important final question, the intense training sessions are always concluded, and the stock analysts are then ready to take their places on Wall Street.
Of late, Apple has refused to admit the obvious, which was their need to participate in the lower end of the smartphone market, especially in China and in the emerging markets. At their most recent meeting in Cupertino, California, the pricing of the iPhone 5C was announced to be $700, instead of the expected $400 — a big disappointment for everyone. Apple’s apparent stubbornness of insisting on higher margins at the expense of growth was very reminiscent of the ill-fated history regarding the Eastman Kodak Company — with upper management firmly explaining to a Kodak research and development engineer that, “We’re a film company, understand? We’re a film company, period!” In fact, not recognizing the total addressable market (TAM) was touted by most of the Apple analysts, and the lack of a China Mobile deal also had a negative impact. Consequently, if you add all these facts together, plus commoditization, it should have unequivocally spelled “sell.” (No, I’m not a Pavlovian graduate.) However, when it came time to give a rating, not one stock analyst used the “s” word. Rather, the terms “hold,” “neutral,” or even “buy,” were used instead of what everyone really wanted to say, namely “sell.”
Please, I strongly urge everyone, as Apple’s stock declines, don’t blame the poor stock analysts; after all, you now know the reason why they can’t say the “s” word.
Indeed, Wall Street revelations are always so “shocking.”
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