I just thought that, seeing as I’m giving the gold price drop some attention, it’s time to turn some of that to Apple. And their apparent bugger of a day yesterday (Apple broke the $400 mark). Here’s a picture of Apple’s share price for the last year:
So I feel like this might be a good time to explain how to read a share price graph. Whenever you’re looking to see how a share is doing, you’ll be wanting to pay attention to two things:
- share price – which I feel is a bit self-explanatory; and
- trading volume.
Why Trading Volume?
Trading Volume is often the big thing to look at (in my opinion). And here’s why:
- Share prices are not the general consensus of all shareholders at a point in time.
- Rather, a share price is quoted as the last price at which a trade actually took place (ie. the last time an investor actually bought shares and another now-former shareholder actually sold them to him/her).
- An example to explain why that distinction is important:
- Let’s say that I hold 15 Apple shares out of the tens of millions that are in issue. And I sell them right at the end of the day. And I’m desperate for the cash – so I tell my broker to sell them at any price.
- The last open buy-order of the day is a gentleman in Singapore that’s chancing it – so he threw in a low-ball bid of $380 (explains why no one had sold him any shares during the day).
- The broker sells him my shares at $380.
- I’m highly annoyed/disappointed.
- Nasdaq announces to the world that the Apple share price just dropped to $380 at the close of trade.
- But is that really a good reflection of the value of the tens of millions of shares?
Also on that point – let’s say that one of the big investors (holding tens of millions of the tens of millions of shares in issue) decides to sell-off their holding today. I’m afraid that nothing will cause a collapse in the share price like a sudden flood of shares for sale. Which is why you always should look at volume as an indicator of the reliability of the share price.
And interestingly (at least for me), if you go back to the share price graph above and you have a look at the places where the share price fell dramatically (around mid-November 2012, and the end of January 2013), what you should notice is dramatic spikes in the volume of shares traded.
That is what a behavioural economist would call “panic”.
So What’s the Apple Story from Yesterday
Well – the big news is that Apple “finally broke down through the $400 barrier”. But if you have a look at the volumes in the share price graph up top – you’ll notice that there wasn’t really a significant amount of trading happening.
It’s a little bit like when you’re fishing, and you see a whole lot of swirls right near the bank, so you’re all “let me cast my rod that way”. And then you cast there, and you realise that it’s just the babies making a lot of noise.
And if you look at the day movement of the share price, you can see that the “dip below $400” happened momentarily at about 1 o’clock. But it recovered, literally, within minutes.
So it really doesn’t seem as bad as it’s being made out.
The “Breaking News”
Alright – there was also a reason for the panic yesterday. One of Apple’s audio chip suppliers is Cirrus Logic Inc. Yesterday, Cirrus reported that it’s seeing a build-up in its stocks of audio chips (about $23.3 million worth). About $21 million of that relates to “a high-volume product from one customer”; and seeing as Apple apparently accounts for 90% of their audio chip sales, the market is making the obvious assumption that Apple is the “one customer”.
This then turned into a worst case scenario interpretation – because an increase in suppliers inventory must mean that the customer (being Apple) is not buying the chips to put in its iPhones and iPads. Which must mean that Apple is not selling as many iPhones and iPads as it expected to. Cue: a collapsing stock price for Apple.
I read the press release, and here’s what it actually said:
“The company also announced that it will record a total net inventory reserve of $23.3 million of which approximately $20.7 million is due to a decreased forecast for a high volume product as the customer migrates to one of Cirrus Logic’s newer components.”
That is: whoever this customer is, they’re moving away from an old Cirrus chip to a new Cirrus chip. Maybe the build-up is because Cirrus thought it was going to get more orders from Apple, and Apple didn’t make them. Or, and here’s a thought, it’s because Apple just wants to put newer chips into the phones it’s supplying.
Either way – the price-to-earnings ratio for Apple is now around 9. Which is just ridiculous. I mean…
*dashes off to call broker to buy Apple shares*
