Last night Apple (AAPL) CEO Tim Cook announced that the company had repurchased $14 billion worth of stock in the last two weeks. $12 billion of the shares were repurchased as part of an existing $60 billion buyback program and an additional $2 billion were bought on the open market. Cook told reporters the decision to buy had been triggered by what he called a surprising 8% drop in Apple shares after the company reported weak earnings on January 28th. He further suggested the "opportunistic" and "aggressive" purchase decision demonstrated confidence in Apple's direction.
"We're not just saying that," Cook told reporters, presumably with great confidence. "We're showing that with our actions."
Earlier this week in a move that received considerably less media attention I announced to people who follow me on Twitter that I had been buying Apple shares. The purchase followed a piece I'd done last week (see Buybacks are for iDiots) in which I gently criticized Apple's share repurchase policy but said I personally wouldn't bet against the company as the stock approached $500. I made the purchase hours after noting the stock looked technically strong in a segment with Jeff Kilburg.
"Apple's refusal to break below $500 demands respect," I told 18k Twitter people, "@theKilir convinces me to get long." I regarded my purchase of Apple shares as a demonstration of my opportunistic aggression, confidence and macho walk-the-talk nature but I chose not to say so to the media the way Tim Cook did. I'm humble that way.
What’s wrong with a CEO defending his stock?
Cook's braggadocio is pushing Apple shares higher this morning. That makes his decision to accelerate the buyback look smart. Not coincidentally it makes me money. I’m grumpy anyway. Here are three reasons why:
1. Apple doesn’t have enough gunpowder to support the stock for long.
Cook spent almost ¼ of Apple’s entire authorized buyback in less than 10 days. The volume weighted average price (VWAP) for the last 8 days was $507. Assuming that was Apple’s price the company bought 27.6 million shares. That would account for more than 15% of the total volume since last Tuesday, the equivalent of 1.5 trading days.
Cook and Apple kept Apple from going below $500 but the company can only buy at that rate for less than one week. Trying to support the long-term value of a stock with buybacks is like trying to keep a sidewalk dry by catching raindrops with your hat. You’ll run out of hat before the clouds run out of rain. If Apple misses again Cook won’t have money to help.
2. He skewed the market.
I bought because I was under the impression there were organic buyers at $500. Instead the price was strong because Apple was painting the tape. The aggression of the buyback screwed up the price discovery system of the marketplace. Not only did I overpay for my shares but I also don’t know where organic buyers are going to come into the market.
3. Trading Apple is not Cook’s job.
Cook knows Apple better than anyone in the market. He obviously knows that. What he doesn’t seem to understand is that investors know more about stocks than he does. That’s because investing is what we do for a living. It’s an acquired skill, not a god-given talent. Cook was surprised by the selloff after Apple reported a lousy quarter. He shouldn’t have been.
Cook has a huge job in running Apple. It’s too much to expect anyone to be able to run Apple and invest on a professional level. That’s why he should concentrate on being CEO and ignore the stock market on a day-to-day basis. I don’t want the CEO of my Apple holding press conferences to talk smack about his trading. That’s my job. If I stick to investing and commenting while he focuses on running Apple, we’ll both be better off in time.
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