With a single tweet billionaire investor Carl Icahn validated the power of social media and obliterated the notion of an efficient stock market. He also made himself more than $50 million and "unlocked value" to the tune of $22 billion for Apple (AAPL). It's fair to say that no person in history has accomplished more with 140 keystrokes.
The tape tells the story. At 2:20pm shares of Apple were trading at about $475. Five minutes later Icahn (@Carl_C_Icahn) shared the following with his roughly 50,000 Twitter followers:
Ten minutes later Apple shares were trading for $484. The stock closed higher by nearly 5% for the day at $489.57 and today blasted through $500; a level not seen since January. That works out to $25 per share or $22.75 billion in total market cap for Apple. A buyback was hardly a fresh idea and Icahn's position in Apple, rumored to be over $1 billion, is huge for an individual but nothing in the context of a company this large.
There's something weird here. It's nice for Apple to move higher and getting long and loud (buying stock then talking about it) is a time honored Wall Street tradition. The problem is what a roughly $150 million-per-keystroke tweet says about Wall Street to Main Street investors.
"Investing is about independent thinking," warns Jonathan Hoenig, founding member of CapitalistPig hedge fund, in the attached clip. "To buy a stock just because Carl Icahn or anyone tweets it, is to be the epitome of a second hander and in the stock market that can get very expensive very quickly."
That's the truth according to fundamental rules of finance. Argue all you want about the power of buybacks, Apple already spent $18 billion on repurchases and dividends in the last nine months and name brand hedge fund managers like David Einhorn have been making the case for returning the company's massive cash hoard to shareholders for years.
Icahn didn't change anything fundamentally with his tweet and phone call but he did add a ton of steam to an already impressive move in Apple shares. The company itself is still unimaginative and boring but the stock is a ball of fire. Fundamentals are the bedrock of analysis but the whole point of investing is making money not doing legwork.
Related: Apple's Ultimate Sin: It's Boring!
The fact is Apple's chart looks better today than it did last week. That gets market technicians whipped into a frenzy and with them come retail investors who are literally the last people on earth to get the memo that yet another billionaire has an opinion on what Apple should be doing with its money.
The cause and effect can be maddening but there's no point in fighting the tape, the market, or the endless desire of investors to make a quick buck betting on a guru's latest opinion. The only thing for slightly saner heads to do is state their concerns and get out of the way.
Hoenig does a nice job explaining the danger of investing off the latest headline or tipster: "If they tell you when to buy are they going to tell you when to sell? Are they going to tell you how to manage your position? That's where the rubber meets the road when it comes to investing. Forget what the gurus say."
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