This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Firing Tim Cook: Apple Should Leave That Option Open

NEW YORK ( TheStreet) -- There's nothing more interesting than studying investor psychology.

Fortune's Philip Elmer-DeWitt wrote a must-read piece (see the link at the end of this article) on what happens when investors get too emotional over a stock. DeWitt narrates a real-life worst-case scenario where an Apple (AAPL - Get Report)-only hedge fund manager loses millions in client money. It's all gone. Just like that.

I have interacted with that fund manager several times over email. While we had our differences, I have no reason to believe he's anything other than a) a good person and b) distraught over what went down. So, that said, I am not here to kick him when he's hurting; rather I want to do two things in this article:

1. Outline, with a look in my eerily accurate rearview mirror, the process of what happens when emotion takes over; and

2. Apply that psychology to the notion -- which I introduced Monday -- that Apple's Board should, at the very least, consider making a move with Tim Cook.

For as much time as I have defended the still-dominant Apple in recent months, ever since Steve Jobs' death I have taken a long-term bearish stance on the company and, generally, been neutral to bearish on the stock. On several occasions, I discussed the role of emotion and how it was fixing to blow up quite a few overweight AAPL accounts.

Quick disclaimer: I don't rehash this stuff to show you how "right" I was -- because, heck, we can find equal parts "wrong" -- rather I do this because it can save investors from easily avoidable pain.

Most recently, from Jan. 25:
To dig your heels in -- because selling now would compound [y]our original mistake . . . -- are famous last words for so many investors . . . that type of "strategy" . . . would crush quite a few retail portfolios.

And, from way back on April 27, 2012:
With each victory, you become all the more certain that there's no way -- God willing -- you can be defeated. A little bit of loyalty, and Tim Cook and China will take care of the rest.
Ironically, seeing profits slowly start to get smaller only strengthens your resolve. You hold. You listen to the pumps to buy on the dips. And it keeps working. You're rich. But for every disciplined investor who manages his or her position properly, there's at least one devotee who stays all-in and keeps digging himself or herself a deeper hole. Before you know it, your otherwise rational mind fooled you into staying in a position from 700 down to 250 because you just knew it had to make it to 1,000. It was destiny.

That's the process of emotion we have seen unfold with AAPL in recent months. Investors get emotionally attached to the name, go all-in -- or close to it -- and often leverage their positions with call options. Recipe for almost-certain disaster, if not now, if not with AAPL, at some other time, with some other stock.

Anyway, Apple, as a company, finds itself in a similar spot.

It has gone all-in on Tim Cook. That decision "got made" (sometimes poorish grammar just sounds better!) on Steve Jobs' watch. I acknowledged this reality Monday:
Steve Jobs is gone. Yes. One of his final decisions might end up being one of his biggest mistakes -- leaving the CEO gig to Tim Cook. (Others, including the folks at MacDailyNews, will say Jobs erred most in the way he handled his cancer treatment. Maybe so, but I just can't bring myself to go there.)
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $126.44 -0.13%
FB $87.28 0.43%
GOOG $523.40 0.30%
TSLA $280.02 4.04%
YHOO $39.38 0.13%

Markets

DOW 17,730.11 -27.80 -0.16%
S&P 500 2,076.78 -0.64 -0.03%
NASDAQ 5,009.2140 -3.9090 -0.08%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs