But If Ellison Had Said Nothing ...
I read the Parnassus report on Monday and I admit, it gave me concern. But buy and sell decisions do not occur out of context.
Some thoughts:
I have followed Parnassus for years and respect its portfolio manager Jerome L. Dodson. Besides running a "conscience" fund, his against-the-grain, low-turnover, concentrated investment value style defines "contrarian". He has been a long-time shareholder of AAPL and no one can acuse him of being a day trader. His quarterly reports are excellent.
1) The Parnassus Fund (PARNX), after some great years in 1992-94, finished up with a total return of less than a 1% return in 1995 and a 12% return in 1996 -- underperforming the S&P 500 by 37% and 11% respectively. (With the major markets roaring it was a bad time to be a contrarian.) As a strategy change to improve portfolio performance, Dodson will not invest in a stock that doesn't have a catalyst capable of turning it around within 12 months. In his opinion, AAPL didn't meet that criteria.
2) Mr. Dodson liquidated his position in AAPL on the last trading day of the quarter so that the AAPL position would not have to be included in the 3/97 quarterly report. This is a practice known as "window dressing". Portfolio managers have to conduct their affairs in a fish bowl. Mr. Dodson has to have taken serious shareholder flak over his support of AAPL.
3) Good portfolio managers consider the tax consequences of their actions. Dodson took a sizable tax loss on the AAPL sale which can be used to offset capital gains for years to come. He said he wouldn't rule out reacquiring AAPL in the future. So long as he waits 30 days before repurchasing (and doesn't violate the wash-sale rule) he can have his cake and eat it too. By selling now, he's betting that the stock wont jump on a takeover -- or better he can buy it back cheaper after sub-par quarterly earnings.
4) Proper analysis of AAPL's worth has got to be an enormously difficult enterprise; competion for technology and market share, earnings projections, book value, brand name value, restructuring, government funding (of computers in education.) I heard a nice remark about Wrigley's -- that they never spend anything on R&D to invent a new kind of chewing gum. Often times the analysis on these things can just wear you out.
5) In Mr. Dodson's judgement (as well as mine), Larry Ellison's buyout pronouncements were an aberration. Nonetheless, it propelled AAPL stock upward and provided a *remarkable* (irresistable?) opportunity to raise cash when the market was crashing. Or more simply perhaps, with stocks trading lower, he just found other fish to fry.
Yet it leaves open the question: If Larry Ellison *hadn't provided the selling opportunity*, would Dodson had have liquidated his position when he did?
And what's this all got to do with me and what I do with my position?
I think AAPL stock could easily re-test its lows in the next few months. I'd also be grateful if Mr. Ellison's buyout noises causes a minimum amount of *damage*. I don't think anything will come of it and I'm not looking for a turnaround before end of 1997-mid 1998 .
Yet even near-term, AAPL's stock is awfully cheap and the company has enough marketable assets to attract an acquirer. As Mr. Ellison asserts, AAPL has the technological capability to challenge MSFT on a number of fronts.
Also, a hot product line and growing market share should keep the bears somewhat honest. Should a major PC vendor break NT ranks and license Rhapsody (see Gateway/Amiga story on AAPL Recon), then AAPL's current trading rage will be a not-so-fond memory. Any of this stuff could happen any time. I hope for Mr. Dodson's sake, that he hasn't decided to call it quits just as things were getting interesting.
Nighty-nite.
soup
P.S. Just read the Riyadh post as I was composing this one. Mega-yikes!! |
