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Why Amazon Crushes Apple as an Investment


That Morse code comes from an analyst note on Pandora (P), but it's representative of how Wall Street analysts set price targets and such. Even though reality shows us daily, via the stock market, that this approach no longer applies, these guys keep coming with it, the print media keeps regurgitating it and CNBC and others keep booking these out-of-touch suits as guests.

The method, which consists of plugging numbers into boilerplate, is part of what allows Wall Street analysts to maintain a culture of unaccountability. When you use an objective model and it fails, you can fall back on that model and blame the external forces that failed to cooperate for its failure. But, in the real world, and as TWTR and AMZN, not GOOG, but most definitely AAPL show, external, and not always quantitative, forces are most often at play. As such, you can't simply apply formal models like the one above and expect them to produce consistent results.

If these models had any merit or real-life utility, AAPL would trade higher, AMZN lower and so on and so forth. The bearish argument on AAPL is qualitative. Same goes for the bullish AMZN case. They defy anything quantitative. And when AAPL goes up or AMZN goes down, it won't be because of what the models told us, it will be because something changed with the respective company's narrative. It might be that some number was missed, but that's merely a trigger that leads to a reassessment of the business.

In other words, a once intact narrative starts to unravel, stock falls. Or, inversely, with Apple, the narrative starts to come together. An earnings beat (not a sandbag beat, but a real one) might prompt investors to take another look at Tim Cook as CEO.

Or, pursuant to TWTR (and any other name for that matter), it might just be that it was time for a breather. But, if confidence in the business holds, the stock will again head higher, irrespective of valuation concerns. 

Fascinating stuff as far as I am concerned. I love talking about it. Leaving some questions and thoughts open-ended as to move the conversation forward and challenge my own beliefs.

It comes down to the interplay between quantitative and qualitative methods of analysis. In graduate school, studying the social sciences, I was amazed at the divide between researchers. Most committed to themselves to one approach, dissing the merits of the other in the process. The cats who took on the emerging multi-method, multi-disciplinary approach seemed to get it more than everybody else.

Same with looking at companies and stocks. Sure, I am bias to qualitative analysis because that's what I know and think works. But I'm not completely discounting the quantitative. Because of the ubiquitousness of the quantitative I have to come at it hard, but that's not to say you don't look at it. You look at in its proper place ... and, like Cramer basically said, you don't stay away from a stock simply because the numbers don't add up. If you have, you have left boat loads of cash on the table.

So, over email (on Page Three), I get this comment from a reader:

Stock quotes in this article: AAPL, TWTR, AMZN, GOOG 

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