I was constantly amazed at how brokers via their analysts were constantly telling other businesses how to run their business. This was amazing to me because outside of any and all aspects of the Greek economy, stockbroking firms were the worst run businesses I had ever seen.
What is interesting is that this unsolicited advice giving now seems to have spread to hedge funds who cloak it under the guise of shareholder activism. As fellow blogites will know I have written a bit about Apple over time because it is such an excellent study in the foibles that people bring to investing. Over that time I couldn’t help but notice that Apple is also victim to shareholder activism via a hedge fund. David Einhorn who runs Greenlight Capital has been whinging that Apple should give away its mountain of cash to shareholder….in other words to him.
This is an interesting proposition since Einhorn is noted as a long term holder of positions, not someone who simply tries to squeeze the balls of the CEO and board for the fun of it.
However, I was interested in the fact that Einhorn had been a holder of Apple for three years and was still a holder. So I decided to take a cynics look at this notion that Apple should release its cash.
Based on the assumption that Einhorn and Greenlight had been a holder for three years I generated an assumption of a buy signal around that time. The chart below shows a theoretical buy on the first 52 week high that closes above the previous resistance. Accompanying this position I have (of course) dropped in a stop. This is a simple 3ATR initial that is set to transition to 5ATR.
This trade is a bust, I was in at $219.70 and out on the spike low at $212.61.
So, I thought I would try again with a similar set of assumptions post this trade. So I am in again on the next 52 week high to close above resistance. The stop remains the same.
This is a bit better, in at $293.53 and out at $573.87, a gain of 95%. The important issue here is that the position has been sold and not held. The summary of the two trades is shown below.
This raises the question of are seeing activism or self interest. What would I do if I were a billionaire fund manager who had the power to compel boards to action and frighten shareholders and I had seen one of my darling positions tank?
I would probably start whinging to get them to release their mountain of cash so my position didn’t look like road kill.
Once again Apple demonstrates the reality of being human.
