Apple Versus Wall Street: Don’t Pity the Hedgies

John Cassidy has an interesting perspective on what’s motivating David Einhorn’s battle with Apple’s management:

According to a piece on Forbes.com, Einhorn and Tepper paid an average of about five hundred and seventy-seven dollars for their shares, which suggests that they are each sitting on a paper loss of close to a hundred and thirty million dollars. Naturally, they aren’t pleased, but their predicament isn’t Cook’s responsibility.

In buying Apple shares last year, when the stock was heading for seven hundred dollars, investors were willfully ignoring the law of large numbers and the laws of supply and demand. With Apple’s annual revenues reaching a hundred and fifty billion dollars and rivals, like Samsung, launching top-notch products at lower prices, its rapid growth rate and expansive profit margins were virtually certain to come down. Now that’s happened, a bit sooner than expected, and the stock has cratered even as Apple has continued to post record-breaking numbers: in its most recent quarter, which ended on December 29th, Apple reported $13.1 billion in profits on revenues of $54.5 billion, an all-time record for the company. (By comparison, Exxon Mobil, the oil juggernaut, generated $9.95 billion in profits during its most recent quarter.)

If Einhorn and Tepper were really as smart as their media cuttings suggest they are, they would have been shorting Apple’s stock, not piling in with everybody else. But they decided to play the momentum game, which backfired on them. Now Einhorn is trying to bully Cook into distributing some of the hundred and forty billion dollars in cash that is sitting on Apple’s balance sheet, which translates to about sixty-five dollars per share. As a stockholder, that is his right: Apple is a public company, after all.