Martin Bryant of The Next Web Interview

“So paradoxically, the opinion of those who are highly paid should be treated with suspicion while the opinion of those subject to peer review should be treated with respect. It brings to mind the difference between highly paid fortune tellers and pundits whose methods are obscure vs. poorly paid graduate students whose methods are open to all. Whose opinion is worth more?”

To read more see Horace Dediu on the bad habits of Apple analysts and why Tim Cook shouldn’t be fired – The Next Web


  • LRLee

    “I think it suffices to say that there are too many institutional owners, and hence too much concentration of homogeneous thought about the company” I’ve long thought that stock splits to be sheer voodoo. However, I’ve also come to realize that Wall Street is primarily voodoo. So, doing something because it is voodoo is perfectly rational. I wonder if a stock split would mitigate the “concentration of homogenous thought” by spreading out stock ownership more widely. Or perhaps herd mentality in the form of “uh oh, he’s stampeding, I better stampede too” would just make the stock roller coaster even more eventful.

    • Walt French

      I think you have a fine goal. But what evidence is there that giving every shareholder say, three shares at $150 each where they previously had one @ $450, changes the dynamic of investor analysis AT ALL?

      First, institutional investors are going to control a good fraction of Apple’s shares because they control a good fraction of ALL shares because they control a good fraction of ALL investments. They generally base positions based on a fraction of their portfolio’s value, often explicitly by comparison to their portfolio’s benchmark. So for example, if Apple is 4% of the S&P 500’s value, an institutional investor who “likes” the stock should hold MORE than 4% of his portfolio in it. Otherwise, the more right he is about Apple out-performing, the more he’ll lag his benchmark by holding even a nickel’s less than that same 4%.

      Second, academics generally say that what sets the stock price is NOT the consensus of everybody’s beliefs — at any moment, individual decision-makers might believe that it’s worth anywhere from $200 to $1200 — but rather, the marginal investor who buys/sells when the price goes below/above THEIR targets. That guy who thinks Apple is worth $200, and the one who believes it’s worth $1200, don’t count: they’re already maxed out in not holding (occasionally, maxed out shorting) or holding a big chunk of their wealth in Apple. Meanwhile, the very few who think they have better use for their money, or who’ve recently seen a personal opportunity that they didn’t before, will trade with one another at a price that makes both happy. A large number of bystanders — those who haven’t seen any reason to change their previous beliefs, or who are locked in place by not wanting to take short-term gains, or index fund managers, simply don’t “vote” on what’s a good price for the stock. Presumably, investors who want to put <$1000 into Apple have some extra flexibility due to a split, but are the investors most unlikely to become active in the market, OR to make actually informed, independent assessments of the share price.

      Finally, a rebuttal to the argument that splitting the shares are a time-honored tradition for making shares more available to investors: the split incurs a minor expense at all owners, and their accountants, who have to update their records, and made some sense when it was more costly to trade an “odd lot” of fewer than 100 shares. Looking at various brokers' price lists, I no longer see the distinction made. Active traders (still) need to watch that they get a good price because most retail brokers who quote $7.99–$14.99 a trade actually are paid to direct the orders thru a company that exacts another couple of pennies per share in how they execute the orders. The number of shares is a minor, actually about insignificant, part of how these firms manage their business.

      • LRLee

        Thanks, Walt. I appreciate the time you spent for your reply. That’s a really great explanation of splits and what they mean. I’ve had a few arguments about stock splits. My position is they don’t mean anything and your post reinforces that. Yet, stocks do split. So there must be something that companies feel is in their own best interest that compels them to split. I’ve known investors who hunger for stock splits almost obsessively. And it does seem to drive the stock price up. Maybe the price would’ve gone up anyway. Maybe the split is a signal that the price is going up anyway. However, if Apple is going to split its stock, I vote for a 10 for 1 split. They’ve gone big for debt and big for buyback and big for dividends. A big split is irrational. It’s perfect for an irrational market.

      • Walt French

        LRLee wrote, “Maybe the split is a signal that the price is going up anyway.”

        This begs the question as to why the split would move the value of the company.

        There *ARE* all sorts of perceptual or behavioral reasons a split might change the value of the company. It can promote the notion that the company has been quietly successful; it can make people think the shares are “REDUCED PRICE!!! FOR FAST SALE!!!”

        I’ve done analysis that suggests the lower the share price, the more individual investors favor the stock, and those stocks perform better when individual investors are more enthusiastic than institutional ones. And, alas, worse when individuals, who notoriously mistime market opportunities, get more cautious than their institutional counterparts.

        I’m headed to a conference tomorrow where an academic will present her work in how even the LACK of news is treated by the market. But the reason academics are still working in this area is that any effects are subtle.

        Given that there *MAY* be an effect that wears off (depressing the price after the split boosts it; I don’t know of any study that shows the effect is permanent) and inasmuch as it doesn’t change the company’s business one iota, I’m no fan of it.

      • MarkS2002

        (I seem to have struck the thumbs down arrow with a fat finger.) When I could afford 100 shares of Apple before the market crash, my advisor was finally “allowed” to buy them for me. After the first run up to $400, it was suddenly throwing my portfolio out of balance. In spite of the ton of gains I lost by not selling RIMM, the Apple had to be reduced.

      • Walt French

        Sounds like your broker’s ready for some new tricks.

        And here’s one for you: Disqus shows your votes in color; re-tapping a highlighted arrowUNvotes

      • LRLee

        (why did someone mark your post down? odd…) I’d be interested to hear your thoughts on the conference and how lack of news is treated by the market. Returning to the subject of splits being thought of as “good”, I’ve been on the receiving end of a reverse-split twice. I would have thought that if splitting is indeed good, then a reverse-split would be bad. But in my tiny sample, it appeared to be good in terms of share price as well. At least in the short term. My view is that it’s the same pie no matter how many slices you get out of it. I admit to naiveté here.

      • Walt French

        This is (maybe an earlier version of) the paper I mentioned:

      • Walt French

        Just back, and regrettably the “interesting” paper was about the pattern of prices after a merger deal is announced, and before the completion is known.

        If Big Guy, Inc., offers $40 for Pipsqueak, which has previously been trading at $32, typically the price rockets immediately to oh, $39.50, reflecting uncertainty whether the closer due diligence works, the FTC or Chinese Telecom Ministry approves the deal, etc. Then the price gradually rises towards the $40, very often being $39.98 on the day before completion, when it’s a virtual certainty.

        In between, you have to guess and Ms. Shue found people are over-optimistic at first, then get pessimistic during the absence of news, leading to what she wrote up as the best strategy (absent knowing any inside info!) being to be to buy in around 10 weeks after the announcement, then sell out after maybe 40. I didn’t write this down carefully and if trading costs aren’t VERY WELL KNOWN, this turns bad, quickly.

        But this was an historical study and among the thousands of deals there was a huge range of uncertainty. A M&A hedge fund could track this sort of stuff, but individuals should probably look for more realistic ways. The title of the paper was just a tidge misleading.

        For my work, some much more interesting ideas. The paper about gold inspired a new way to think about how much to allocate to different assets (a long-time question). How different nations’ stocks move similarly, and why. How much certain investment ratios predict returns, and when. Good stuff.

      • LRLee

        Thanks. The absence of news and its effect on people’s perception of the state of any subject including stocks would be an interesting study. Your exploration of your own ideas sounds interesting too.

      • Relentlessfocus

        Excellent, both the passage above and the added material below.

      • JDSoCal

        You lost me as soon as I saw the word, “academics.”

        Perhaps you could have your “academics” tell us how AAPL would be trading at $3600 right now without its 3 splits.

      • LRLee

        Apple IS trading at $3600 or $450 post splits (assuming 3 splits). You have to pay the same amount to acquire an equal piece of the company pre or post split. The idea (I think) is splits do not make that piece of the company cheaper nor more expensive. My questions are do splits affect the current cost of that piece of the company and if so why, and if not, why was it done. The only reason for splitting I have heard is to get Apple eligible for the DJIA. The thesis there is that it must be a good thing. I am skeptical of that since Apple has not been on the Dow and they’re doing just fine.

      • JDSoCal

        I am well aware that I have an equal piece of Apple after splits, genius. Completely missed my point. My point is AAPL would never be this high without a split, because P/E’s are irrelevant. All the average investor looks at is relative price, and sees Apple as “expensive” even as its P/E goes down.

        French is also full of baloney that the retail investor does not control Apple. That’s not what traders like Jon Najarian say, and he owns a brokerage.

      • Walt French

        What? A retail broker tells his customers that they matter?!?

        I’m shocked! Why, that’s the same thing as a politician kissing babies. They’d never stoop so low just to draw votes/business.

      • JDSoCal

        What a ludicrous, ad hominem attack. A brokerage founder and professional trader says a single stock (of the thousands his brokerage trades) is retail-driven, and he’s pandering to clients?

        And why was BRK.B created with a 50-1 split? And what happened to the share price once that happened? Even Buffett said the B class is the tail wagging the dog.

      • Walt French

        I think you’ll have to endow a chair at a B-school. Nobody I talked to was interested in questions that don’t lead to what they see as bigger understandings.

        Or publications in journals.

        One very well-known financial economist was the exception; he recently wrote a paper about the price of gold, together with somebody I know from a well-known (and successful) investment manager. Unlike almost every other research paper I’d seen, he went thru all the reasons for why gold should be $50, $1600, $30,000 and some of the other numbers that various TV bloviators claim, and couldn’t find a shred of economic justification for any of ’em. Only thing was that since ancient Rome, over very long periods, the price has stayed the same compared to a basket of other goods. But since it moves around so sharply, it’s a terrible inflation hedge. Or currency hedge. Or store of wealth. Or… etc. As I say, no theory much more sophisticated than “you know, the madness of crowds…”

    • I originally wanted a split, to provide more granularity in the stock price for the purpose of doing covered calls against my position, or for selling puts to open new positions.

      With the advent of AAPL mini-options (which represent 10 AAPL shares as opposed to 100), I no longer have any need for an AAPL stock split.

      In fact, I would like AAPL to do the opposite of increasing their # of shares. Good thing that this is exactly what they announced at the Q2 conference call – aggressively reducing the float via buybacks.

      • LRLee

        Hey, maybe you could answer some questions for me. What happens to the stock that Apple buys back? Are they gone forever and cannot be put back into the market, are they just in Apple’s back pocket, or something else? Can they be put back into the market?

      • They “disappear”. It would be redundant for AAPL to show those shares in the assets side of their balance sheet, because the number could be cancelled out by the equivalent # of shares in the liabilities/shareholders’ equity side of the balance sheet (A = L + SE). Will be a cleaner balance sheet and less confusing tax situation (no need to pay themselves dividends).

      • As long as the shares are retired, they disappear. The company could hold the shares but I think the purpose of the buyback is to retire them.

      • LRLee

        Thanks Mani and Horace for satisfying my curiosity