Single Tweet Sends Apple Shares Soaring(wired.com)
wired.com
Single Tweet Sends Apple Shares Soaring
http://www.wired.com/business/2013/08/single-tweet-sends-apple-shares-soaring/
8 comments
Icahn wouldn't be above sending a tweet like that to raise the price before unloading shares. His goal is to maximize his return, not that of his twitter followers.
What I find interesting is Icahn filed a press release yesterday, basically telegraphing his intention to post juicy bits like this to Twitter:
NEW YORK, Aug. 12, 2013 (GLOBE NEWSWIRE) [..]
Our Chairman, Carl C. Icahn, intends to
use Twitter from time to time to communicate
with the public about our company and other
issues.
[..]
It is possible that the information that Mr.
Icahn posts on Twitter [..] could be deemed
to be material information.
I kind of doubt blowing his credibility with a pump-and-dump is part of his long-term plan for maximizing his return.
I'm not saying it's a pump-and-dump. What I am saying is that Icahn (and others like him) are very careful to hide their purchases from the market while they are still purchasing, in order to prevent their own purchases from unduly raising the price.
If anything, Icahn's tweet signals that he is no longer purchasing AAPL in quantity. Now he wants the market to "catch up" to his value appraisal so he can realize a gain.
If anything, Icahn's tweet signals that he is no longer purchasing AAPL in quantity. Now he wants the market to "catch up" to his value appraisal so he can realize a gain.
And he's not even trying to hide it. "We currently have a large position". That means no longer purchasing, it has been done.
So... it's a pump-and-dump.
It's more likely to be a pump-and-keep, given his history.
Anyone interested in the backstory of this sort of thing might find this brief article on Icahn's "$2,000 Tweet" interesting.
http://www.buzzfeed.com/mariahsummers/if-you-want-to-be-a-tw...
http://www.buzzfeed.com/mariahsummers/if-you-want-to-be-a-tw...
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Technically, the single tweet did not send the shares soaring. A significant investment from successful active investor Icahn did. The tweet just revealed the investment to public.
Take Elon Musk's tweet that Tesla was being profitable for the first time as an example. The tweet lead to soaring stock price but the cause was excellent execution by Tesla team, not the tweet itself.
Take Elon Musk's tweet that Tesla was being profitable for the first time as an example. The tweet lead to soaring stock price but the cause was excellent execution by Tesla team, not the tweet itself.
In this case you're probably right, but lots of HFT algorithms do use Twitter as a feed to inform trading strategies. Tweets can literally send stocks soaring or sinking.
That's why Warren Buffet gets every time Anne Hathaway makes a movie.
http://www.theatlantic.com/technology/archive/2011/03/does-a...
http://www.theatlantic.com/technology/archive/2011/03/does-a...
I think it's a combination of both. Icahn's investment in Apple was the reason that people found reason to invest, but that information was brought to people through the distribution channel of Twitter.
So Twitter is an accomplice in this situation, since it acts as how that information got disseminated to an audience, which I think still counts for a lot since it could have been an important signal, but it without Twitter, not as many people might have not known about it.
Not only that, but the fast dissemination of this information (due to the nature of Twitter) might have made the stock go up faster than a news article coming out a day later, being read at different times of the day.
So Twitter is an accomplice in this situation, since it acts as how that information got disseminated to an audience, which I think still counts for a lot since it could have been an important signal, but it without Twitter, not as many people might have not known about it.
Not only that, but the fast dissemination of this information (due to the nature of Twitter) might have made the stock go up faster than a news article coming out a day later, being read at different times of the day.
Trees falling in the forest, etc. etc.
"But tweeting about a private meeting with the chief executive of a publicly traded company not your own doesn’t feel like the use case the agency anticipated."
Shouldn't this be the headline? Why isn't this considered as illegal insider trading if the contents of the meeting are not disclosed?
Shouldn't this be the headline? Why isn't this considered as illegal insider trading if the contents of the meeting are not disclosed?
Investors have meetings with management all the time. Unless Tim Cook gave him material non-public information about the company, it isn't illegal.
Just out of interest, does anyone know how long it took between the time the tweet was published and how long it took for an identifiable/linked rise in share price? The article does mention "Less than two hours later" but I'm interested to know how quickly people react to a tweet like this.
Edit: Google Finance seems to suggest less than one minute. I'm not sure if any data is freely available that would allow me to see this jump in the seconds range.
Edit: Google Finance seems to suggest less than one minute. I'm not sure if any data is freely available that would allow me to see this jump in the seconds range.
The initial response was within seconds. But the surge continued for minutes. Well, the surge hasn't really stopped yet depending on how you look at it.
Looking at just one data stream.... The 21 seconds between 14:21:10 and 14:21:31 there were 23 trades. In the next SECOND at 14:21:32 there were 105 shares traded. And the price jumped, in that one second, more than the entire previous minute. So I'd say 14:21:32 is when the market started reacting. Not sure exactly when the tweet went out.
A search for nasdaq time and sales will get you the second by second data.
Looking at just one data stream.... The 21 seconds between 14:21:10 and 14:21:31 there were 23 trades. In the next SECOND at 14:21:32 there were 105 shares traded. And the price jumped, in that one second, more than the entire previous minute. So I'd say 14:21:32 is when the market started reacting. Not sure exactly when the tweet went out.
A search for nasdaq time and sales will get you the second by second data.
Thanks for this, I find that amazing
Wouldn't the trading algorithms be tuned to amplify a price move for AAPL in particular? What if the subject had been Caterpillar?
Yeah it was pretty much immediate. The volume surge was huge.
Another proof of how emotional markets are (or rather people behind the markets).
Icahn saying that a company is undervalued isn't meant as idle chatter. He has in the past repeatedly tried to buy out companies that he has thought to be undervalued. It seems shockingly unlikely that he'd try to LBO Apple, but if there is one person who could do it, it'd be him. A buyout offer can drive stock prices up 25% - 50+%.
The fact that the message came through Twitter rather than a press release doesn't matter: the markets moved because Icahn is buying up Apple stock.
The fact that the message came through Twitter rather than a press release doesn't matter: the markets moved because Icahn is buying up Apple stock.
The reason I would still call that an emotional, rather than logical response is that these Tweets don't have much to base a valuation on. For example, what is a "large" position or "larger" buyback in actual dollars? You have to estimate and guess.
At the end of the day, Cook and Icahn may not agree on anything concrete and all of this would have been vapor.
That said, it doesn't mean you cannot be opportunistic and make some money on the ups and downs this thing generates.
At the end of the day, Cook and Icahn may not agree on anything concrete and all of this would have been vapor.
That said, it doesn't mean you cannot be opportunistic and make some money on the ups and downs this thing generates.
Right. Swooning over a vacuous tweet by some investor. Almost like an instant pyramid scheme. And what's with uppercase "APPLE"? Did he mean AAPL?
And all the money flying around today (its POMO Tuesday[0]) couldn't hurt either…
[0] http://www.newyorkfed.org/markets/pomo/display/index.cfm
[0] http://www.newyorkfed.org/markets/pomo/display/index.cfm
Or the machines behind the markets.
Sounds like a good time to pull out A Random Walk Down Wall Street again, for the uninitiated: http://www.amazon.com/Random-Walk-Down-Wall-Street/dp/039333...
I wonder how well tulip bulbs are doing these days.
I wonder how well tulip bulbs are doing these days.
The investing success of value investors of all kind would not be possible if the premise of his book, the efficient-market hypothesis, was correct. Warren Buffett's track record is a repudiation of it.
Not necessarily. Warren Buffett's track record is helped by two major factors.
The first is that, being Warren Buffett, he gets opportunities that regular investors don't. For instance look at the 2008 sweetheart deal he got on Goldman Sachs. Any smart investor would have leaped at it, but the value to them of saying, "Warren Buffett believes in us" was why he was offered the deal instead of someone else.
The second is that Warren Buffett is a big fan of buying and holding companies. Which leaves him in charge. By all accounts from the CEOs who continue to work for him, he is a phenomenal manager. Therefore the fact of his investing creates long-term improved returns.
When you move away from Warren Buffett, who else has been able to demonstrate long-term returns above what mere chance says is likely for someone to achieve by luck? In one study that I saw, there was only one other, Peter Lynch. The odds that someone anywhere in the mutual fund industry would match him by chance were under 5%. So there you have evidence that it is possible to beat the market for the right person.
But what advice does Peter Lynch himself give investors these days? If you want to invest in the stock market, buy and hold an indexed mutual fund!
Nobody seriously believes that the efficient market hypothesis is literally true. However your odds of being able to identify and exploit such inefficiencies in the broader market are sufficiently low that you are best off acting as if it is.
The first is that, being Warren Buffett, he gets opportunities that regular investors don't. For instance look at the 2008 sweetheart deal he got on Goldman Sachs. Any smart investor would have leaped at it, but the value to them of saying, "Warren Buffett believes in us" was why he was offered the deal instead of someone else.
The second is that Warren Buffett is a big fan of buying and holding companies. Which leaves him in charge. By all accounts from the CEOs who continue to work for him, he is a phenomenal manager. Therefore the fact of his investing creates long-term improved returns.
When you move away from Warren Buffett, who else has been able to demonstrate long-term returns above what mere chance says is likely for someone to achieve by luck? In one study that I saw, there was only one other, Peter Lynch. The odds that someone anywhere in the mutual fund industry would match him by chance were under 5%. So there you have evidence that it is possible to beat the market for the right person.
But what advice does Peter Lynch himself give investors these days? If you want to invest in the stock market, buy and hold an indexed mutual fund!
Nobody seriously believes that the efficient market hypothesis is literally true. However your odds of being able to identify and exploit such inefficiencies in the broader market are sufficiently low that you are best off acting as if it is.
Anyone ascribing to efficient market hypothesis doesn't watch the market very much. Was Apple really worth several hundred billion more last year than it is now? Either it was extremely overvalued then, or it was extremely undervalued at < 400. Or both. There is nothing efficient about the market. It is volatile and driven very much by emotion on a day to day basis.
Regarding Buffett, he doesn't take over everything. He buys and sells a lot of stock where he doesn't take control, and he does very well doing that as well. Also, he's being doing it for a long long time. This isn't simply flipping 20 heads in a row when you've been doing it for 60+ years
Regarding Buffett, he doesn't take over everything. He buys and sells a lot of stock where he doesn't take control, and he does very well doing that as well. Also, he's being doing it for a long long time. This isn't simply flipping 20 heads in a row when you've been doing it for 60+ years
Anyone ascribing to efficient market hypothesis doesn't watch the market very much.
Considering that the efficient market hypothesis came out of academics studying the market, and has been tested in many ways, your hypothesis is somewhat suspect.
Was Apple really worth several hundred billion more last year than it is now? Either it was extremely overvalued then, or it was extremely undervalued at < 400. Or both. There is nothing efficient about the market. It is volatile and driven very much by emotion on a day to day basis.
It appears that you do not actually understand the hypothesis that you reject out of hand. The hypothesis is not that the market knows the true value of the company, it does not. It is that the best available information on what the price of the company should be is already integrated into the current company price.
As information shifts just slightly about likely long-term prospects, the best estimate of its price can move a lot. This is not news. Nor is the fact that unavailable future information will change the price. Nor is volatility.
Now if you disbelieve the efficient market hypothesis, then fine. However any inefficiency that you discover, once it becomes known, will naturally stop working. I've seen this happen with several that I knew about. Over time the efficient market hypothesis tends to work better and better.
Considering that the efficient market hypothesis came out of academics studying the market, and has been tested in many ways, your hypothesis is somewhat suspect.
Was Apple really worth several hundred billion more last year than it is now? Either it was extremely overvalued then, or it was extremely undervalued at < 400. Or both. There is nothing efficient about the market. It is volatile and driven very much by emotion on a day to day basis.
It appears that you do not actually understand the hypothesis that you reject out of hand. The hypothesis is not that the market knows the true value of the company, it does not. It is that the best available information on what the price of the company should be is already integrated into the current company price.
As information shifts just slightly about likely long-term prospects, the best estimate of its price can move a lot. This is not news. Nor is the fact that unavailable future information will change the price. Nor is volatility.
Now if you disbelieve the efficient market hypothesis, then fine. However any inefficiency that you discover, once it becomes known, will naturally stop working. I've seen this happen with several that I knew about. Over time the efficient market hypothesis tends to work better and better.
>It is that the best available information on what the price of the company should be is already integrated into the current company price.
My point is that there hasn't been any news in the last year big enough to warrant a several hundred billion dollar swing. There simply hasn't been. Just changing emotions.
My point is that there hasn't been any news in the last year big enough to warrant a several hundred billion dollar swing. There simply hasn't been. Just changing emotions.
There hasn't?
The theory under which Apple justifies an insane valuation is the one where they continue a constant stream of innovation, defining new products, keeping everyone else guessing.
The simple fact that in the last year Apple has not delivered evidence that they can continue to do that should justifiably weaken belief in that theory. Which means that our best estimate of its future returns is far worse than this optimistic scenario. Which means that we should give less weight to that possibility, and therefore our best estimate of Apple's correct price is less than it was.
Because of this where you see evidence that the market is not pricing efficiently, I see evidence that you are not as smart as the market about finding what price signals to pay attention to.
The theory under which Apple justifies an insane valuation is the one where they continue a constant stream of innovation, defining new products, keeping everyone else guessing.
The simple fact that in the last year Apple has not delivered evidence that they can continue to do that should justifiably weaken belief in that theory. Which means that our best estimate of its future returns is far worse than this optimistic scenario. Which means that we should give less weight to that possibility, and therefore our best estimate of Apple's correct price is less than it was.
Because of this where you see evidence that the market is not pricing efficiently, I see evidence that you are not as smart as the market about finding what price signals to pay attention to.
>The theory under which Apple justifies an insane valuation...
Let's stop there. They have a PE of 7 ex cash. At the top, they had a PE of about 15. Amazon has an insane valuation. Apple does not, and they didn't at the peak. It was merely higher than it is now.
Let's stop there. They have a PE of 7 ex cash. At the top, they had a PE of about 15. Amazon has an insane valuation. Apple does not, and they didn't at the peak. It was merely higher than it is now.
Let's not stop there.
Apple now has declining marketshare in existing business lines, and there is some evidence that they don't know how to generate new profitable product lines. A year ago neither was true, but there were worries about what the lack of Steve Jobs would mean. So their valuation a year ago was high. Their valuation now fits with a company that the market expects to decline.
Amazon by contrast has strong marketshare, increasing numbers of lines of profitable business, and the market understands that they are not generating profit because they keep starting up new potential lines of business that lose money in the short run. They could become very profitable tomorrow if they wanted.
I am not saying that the market's theory about either company is correct. Just that these are theories that are widely held, which justify the stock prices that you claim are simply wrong.
Apple now has declining marketshare in existing business lines, and there is some evidence that they don't know how to generate new profitable product lines. A year ago neither was true, but there were worries about what the lack of Steve Jobs would mean. So their valuation a year ago was high. Their valuation now fits with a company that the market expects to decline.
Amazon by contrast has strong marketshare, increasing numbers of lines of profitable business, and the market understands that they are not generating profit because they keep starting up new potential lines of business that lose money in the short run. They could become very profitable tomorrow if they wanted.
I am not saying that the market's theory about either company is correct. Just that these are theories that are widely held, which justify the stock prices that you claim are simply wrong.
There are many investors who have outperformed over long periods of time, they just aren't household names (Seth Klarman is one).
What you ascribe to Buffett's success only came late in his career, those opportunities weren't possible when he was running a hedge fund and the early days of Berkshire.
What you ascribe to Buffett's success only came late in his career, those opportunities weren't possible when he was running a hedge fund and the early days of Berkshire.
Early in Buffett's career he had the advantage of believing in value investing before that idea was widely accepted in the broader market. It is easier to make a profit in an inefficient market than an efficient one.
The inefficiencies that he was exploiting are generally harder to find these days. But today he has other ways to make money.
This is not to say that he is not an extraordinary investor - he is. However he's benefited from many advantages beyond just raw investment talent. And as a practical matter, any investor who thinks that they can easily replicate his success is likely to fail.
The inefficiencies that he was exploiting are generally harder to find these days. But today he has other ways to make money.
This is not to say that he is not an extraordinary investor - he is. However he's benefited from many advantages beyond just raw investment talent. And as a practical matter, any investor who thinks that they can easily replicate his success is likely to fail.
I don't think the (strong) version of the efficient-market hypothesis is defensible but Warren Buffet's track record is not proof that it is wrong - in a random market, given a large number of investors, some will do well purely by chance.
Not necessarily refuting what you're saying, but here's an interesting take on "purely by chance" from Buffett, by analogy of coin flipping and getting a run of heads: http://www.tilsonfunds.com/superinvestors.html
That's a great article, thanks. I actually had the coin example in mind when I wrote the comment, but was too busy to write out the full argument!
I've honestly been surprised by how long the market's dislocation has been on this one. It's not common for a large cap stock that is highly covered by analysts and watched by investors. But the market's fears about Apple are my gain, and has become nearly 75% of my portfolio after tanking for the past ~9 months.
Value investors all saw the opportunity in AAPL, but it's nice to have a media celebrity investor like Icahn act as the catalyst to reach fair value quicker.
Value investors all saw the opportunity in AAPL, but it's nice to have a media celebrity investor like Icahn act as the catalyst to reach fair value quicker.
I'm not an investor but I've read both of Graham's main books. I don't think value investing in the Graham sense would lead you to a company as big as Apple, and certainly not with the company's stock as 75% of a portfolio!
Wow, 75% of your portfolio in one stock? I am more of a chicken investor: hugely diversified over the US and International markets.
both approaches are totally fine. just depends on your objectives and volatility tolerances.
I bought a bunch of out of the money calls (500-600) for jan 14 and jan 15 when Apple was 450, and a bunch more at 400. It has been...exciting.
Whenever this comes up I share this quote from Seth Klarman:
“Diversification for its own sake is not sensible. This is the index fund mentality: if you can't beat the market, be the market. Advocates of extreme diversification — which I think of as overdiversification — live in fear of company - specific risks; their view is that if no single position is large, losses from unanticipated events cannot be great. My view is that an investor is better off knowing a lot about a few investments than knowing only a little about each of a great many holdings. One's very best ideas are likely to generate higher returns for a given level of risk than one's hundredth or thousandth best idea.”
“Diversification for its own sake is not sensible. This is the index fund mentality: if you can't beat the market, be the market. Advocates of extreme diversification — which I think of as overdiversification — live in fear of company - specific risks; their view is that if no single position is large, losses from unanticipated events cannot be great. My view is that an investor is better off knowing a lot about a few investments than knowing only a little about each of a great many holdings. One's very best ideas are likely to generate higher returns for a given level of risk than one's hundredth or thousandth best idea.”
Dude why the hell would you do that?
If you have a family and stuff to look out for, you should definitely diversify your portfolio. It can't possibly be worth the risk!
But if you're young and have no family... best of luck, man. But I am an Apple doubter and would invest like that no matter what company you're talking about.
If you have a family and stuff to look out for, you should definitely diversify your portfolio. It can't possibly be worth the risk!
But if you're young and have no family... best of luck, man. But I am an Apple doubter and would invest like that no matter what company you're talking about.
Can I ask why you believe AAPL is undervalued? I think the exact opposite, at its current market cap you could buy both Google and Amazon. The iphone popularity has already crested and is steadily losing ground to android, itunes is losing ground to other digital stores and streaming media.
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