Exit Carl, Enter Warren: The Apple Dilemma

Sunday nights are the worst for interns in charge of social media at the big financial outlets. They toss and turn in a sleepless cold sweat, dreading the dawn, when once again they’re forced to begin another mind numbing week writing headlines for an endless stream of listicles and articles – the journalistic equivalent of beige paint.

So imagine their joy when news broke Monday morning that Warren Buffett was taking a $1B position in Apple? That type of headline practically writes itself.

It didn’t matter that the buy was technically done by investment managers Todd Combs and Ted Weschler, both of whom joined Berkshire Hathaway in the last five years. Anything associated with the “Oracle of Omaha” is headline gold.

But take a moment to scratch below those headlines and this move creates a dilemma for traders and investors alike.

Theories abound as to who drove the decision to buy only the second technology stock, after IBM, that the famous holding company has ever owned. Ultimately, no matter who actually pulled the trigger, it’s likely a difference without a distinction.

The idea that Combs and Weschler would have joined Berkshire intending to veer away from Buffett’s massively successful and widely admired value investing approach, in favor or a more dynamic style of stock picking, seems far-fetched.

It’s more likely that the decision to buy Apple was less about it being a tech stock and more about where it is in its life cycle – a mature company with a predictable cash flow that enjoys a competitive advantage over its rivals. The type of stocks Buffett & Co. love to buy. The attractive valuation just sweetened the deal.

If true, it’s a sign that Apple is no longer your father’s trading stock. Something reinforced by the fact that Carl Icahn and David Tepper – both known as opportunistic, and compared to Buffett, short-term investors – recently announced that they no longer hold positions in the stock.

This makes Apple as an investment vehicle neither fish nor fowl.

Despite the knee-jerk reaction to news of Buffett’s stake, the volatility that traders love as well as the stock’s positive bias – which repeatedly bailed out “buy the dip” investors over the last 10 years – is likely gone.

But this isn’t a win for the retail value investor either. Unless your holding period and need to access invested cash is the same as Buffett’s – meaning forever and never – then putting on a long-term position in the stock might be a bad move.

AAPL

What is obvious in the monthly chart above is that Apple’s stock price is flattening out as trading volume dries up. This is the type of price-to-volume relationship that can hint at the possibility of a long-term sideways pattern forming

How long?

IBM is down about 14% from where Buffett bought it in 2011.  Cisco and Intel have been in a range for more than 15-years after transitioning from must have tech stocks to mature large-caps. Microsoft is just now barely breaking out of its own 15-years as a dead money stock.

It’s too early to tell if this is that fate that awaits Apple, but one thing is for sure. Both traders and investors better think twice before continuing to treat this stock with a “business as usual” attitude.

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