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Apple and Confirmation Bias

Confirmation Bias.  What is it?  This is the human tendency to favor information that confirms their beliefs or hypotheses, not only by hearing what they want to hear but also by seeking out those with similar opinions.   Ths is the smart investors enemy.

I see confirmation bias in Apple today.  It has now dropped 10% plus off its recent high in spite of the growing mountain of positive news regarding the iPhone 5 launch and the coming iPad mini.  Things continue to fire on all cylinders for the kids in Cupertino.  However Wall Street seems to focus only on the few negative marks against this company that is held to the standard of perfection.

Wall Street focuses on Apple Maps and the purple haze in photos taken on the iPhone.  Meanwhile “Main Street” is buying up more than Apple can make.   iPhone owners are not in tune with the shorts and bear arguments nor do they care.  They want the phone and those who purchased it by in large love it.  There are the few out there that may express displeasure with it but you can focus on the 98% who love it or the 2% who are not thrilled.  Wall Street (for now) is focusing on the latter.

The stock price has shown recent weakness and bears fall into confirmation bias traps here thinking that these few negative things are the story and future of Apple.  This could not be further from the truth and these shorts are going to soon have to cover or have their heads handed to them.  Stock price direction does NOT confirm the fortunes of a company.  Witness a few years ago Apple’s drop from 220 down to 80.  I’d say the recovery to 704 shows that you cannot take a stock price movement over the short term to conclude your ill conceived thesis is correct.

So for now the sentiment is negative on Apple in the media.  Earnings are coming and the huge fourth quarter and at some point this all will flip on a dime.  What was once hated and loathed will once again become loved.  What was once not “working” will once again “work” and everyone will pay up and up as the price goes higher.  Traders will desire the stock more as it goes up.  It’s a fools game.

Apple is a company that is not going anywhere anytime soon.  Unlike RIMM or Nokia, Apple has one of the top brands in the world.  Typically ranking number one or number two.  These companies never had such brand equity.  They also did not have the variety of products or the ecosystem that Apple enjoys.  Apple has been making computers for decades.  They are still around today and stronger than ever in terms of Mac unit volume and market share.  They own the music MP3 space.  They are one of the dominant players in smartphones having literally invented the category.  Apple also disrupted the world with tablet computing which is now showing its legs as it crushes the PC industry.

Yes Apple is not a one trick pony like RIMM or Nokia.   Apple is well positioned in many industries.  Apple has the largest cash war chest to defend its position and innovate.  What they can’t innovate they could buy.

Steve Jobs is gone but his crowning achievement is the company he built, its culture and team he left in place.  If you accept Jobs was a genius you could accept he didn’t run Apple to enjoy only during his lifetime.  His genius built a legacy that has lasted for decades and will last for several more decades.

At current valuations the market is giving the stock away.  In the face of tremendous sales strength right now and an amazing product portfolio as well as a moat around their ecosystem the stock is weak today.  I predict this won’t last very long and the stock will make new highs as it heads to $1000 and beyond.  I’d put the odds on this happening at 100%.  I have no doubt and have put my money into this conviction a long Apple shareholder.  I will not fall victim to the confirmation basis of a declining stock price as in my view it does not in any way connect with reality and facts.  Ultimately earnings drive stock prices and earnings will be going way up.

  1. November 11, 2012 at 11:42 PM

    Apple stock has fallen even more than 10% from it’s all time high. A 20% slide down from September. I think this is due to people’s reduced confidence in the almighty Apple. Disaster, after disaster occuring (Maps app and firing of key staff members), and playing the catch up game with competitors (iPhone 5, iPad mini). These seem to be the key reasons for undermined confidence.

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