Shares in Apple Computer took quite a tumble this week, closing at 439.88 on Friday (January 25), down from a high of 700 in September (ticker AAPL, market data via Bloomberg). Investors, or perhaps it would be more accurate to say speculators, became concerned that the company’s pace of innovation is slowing down, and that there are no new, hot products in the pipeline that have the panache of the Ipads and Iphones that have so dominated the tech scene.
The development reminds us that Wall Street lives in a kind of fantasy land, like those fabled 1950′s sitcoms where comely matrons vacuumed in pumps and pearls, in homes free of grime, dust, disorder and fractious children. No company, no matter how skilled its management and employees, can always live up to the Street’s expectations of constant, orderly and ever-increasing earnings. This is especially true of growth stocks, which AAPL surely has been.
The prudent investor must always take into account the divergence between Wall Street’s perception of a company and its fundamental realities. Street perception is driven by momentum, media strategies, buzz and the price pressures created by holders of large positions, whether they be long or short. Over time fundamentals become impossible to ignore and perception, along with price, must adapt to it. This phenomenon creates many pricing inefficiencies and thus opportunity.
We at TMR do not presume to offer investment advice, as our mission is to comment on developments in the economy for our politically-oriented readers. Apple was perhaps the biggest story on Wall Street this week, and thus a timely reminder for anyone who participates in the dynamic but unpredictable capital markets: caveat investor!
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