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Rocco Is Wrong; Apple's Very Much Alive

Stocks in this article: AAPL AMZN

NEW YORK ( TheStreet) -- Rocco Pendola, who is The Street's director of social media and also my friend, keeps a keen eye on the market.

If you're not following him on Twitter, you're missing out.

Pendola recently wrote a bearish article about Apple (AAPL), but I don't share his opinion.

You may not agree with his message, but you have to take someone with a track record like Pendola's seriously.

Pendola called the peak of Netflix (NFLX) near the top in 2011 (while taking a lot of heat from readers).

He then reversed his position and became bullish near the bottom in 2013. If you followed Pendola's recommendations for the ride down, and then up again, you made a lot of money.

Pandora (P) was much the same, only Pendola called Pandora a bargain while the shares traded in the single digits. Following Pendola's advice again resulted in doubling your investment in less than two years.

Even Apple bulls have to admit Pendola has correctly called the share price direction for Apple. The stock is trading near 52-week lows. It's hard to argue against results like his, but I'm going to give it a try.

Pendola offers two theses in "There's No Question Now: Apple is Dead." First, he says stock options are ineffective at motivating senior management (at least with the way Apple has designed its compensation program, as outlined in this SEC filing). Second, he says the stock market is a poor valuation mechanism.

I take the opposite position for both theories, and continue a step further by stating Apple should not be shorted. If you want to trade Apple, stay long.

Pendola assumes "rich" CEOs (however you want to define what "rich" means) who continue to work the hours needed to manage large corporations are no longer motivated by paychecks.

But I argue that it's the rule, not the exception, that CEOs are driven to win, and winning is measured in bonuses and stock options. We're not talking about lotto winners who punched a clock and promptly abandoned their jobs because of a huge windfall.

I don't share Pendola's opinion that stock options don't motivate executives. There is a reason why business executives always know off the top of their heads the prices at which their options become in the money. The reason is because they care, and caring demonstrates the value of the incentive.

Do they need the money to make their house payment or face eviction? No, and you wouldn't want it that way.

Executives who experience dire financial situations if their companies don't perform appear to have a higher incidence of fraud.

But successful executives still pay close attention to their pay -- salary, bonuses and options -- as a yardstick of how well they're doing as alphas.

Steve Jobs believed Tim Cook was the right person for the job, and Apple's board continues to believe so. Apple is making money hand over fist, and it's only a matter of time before the stock once again reflects the reality of the company.

Now I agree with Rocco that Wall Street can be irrational at times. But that's a small consideration compared to the benefits of using the market to measure performance. Even when prices become irrational, they don't stay that way for long, and that's the beauty of the free market. Over the long run, the market will correctly price the performance of a CEO, including Tim Cook's.

Pendola and I made a friendly bet on Amazon (AMZN). I bet that Amazon will trade at $200 before it trades at $300. There's nothing all that magical about $200 and $300. I believe Amazon isn't worth that much, and Pendola believes it's worth more than $300, and round numbers are easy to remember.

I'm willing to bet Pendola that Apple trades above $500 before it trades at $300. It would be a mistake for him to take the bet, but he just might.

At the time of publication, Weinstein had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin. Robert tends to focus on the psychological importance of goals, risk mitigation, emotion, and relatively short term market exposure. With nearly 30 years of studying and investing experience, Robert has experienced the many ups and downs in the financial markets and uses the knowledge gained to maintain balance. Robert believes the best way to make money investing is to avoid losing it. The best way to avoid losing is to know what emotional traps lay in the path of investors and learning how to avoid them. Robert is a voracious reader of financial related books often completing more than one book a week while not trading or writing. Robert contributes to his blog at paid2trade.com on a regular basis with an emphasis on studying behavior finance.


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