Most investors don’t know it yet, but Apple is going to ruin their day tomorrow. After the market closed today, Apple slashed their revenue guidance. Meaning they told the news reporters that when they report their earnings (Jan 29) they expect to have sold around $84 billion for the past quarter vs the $89-$93 Billion previously estimated by analysts. They said it was primarily because of weak sales in China, but the truth is it doesn’t matter. After the news was released, the stock dropped 7.5% in the after hours market* from $157.92 to $146. There are 2 huge reasons you should give a sh*t even if you don’t own Apple…
Sales were expected to drop by apx. $7 Billion for the quarter (only 1/4 of the sales for the year) which is about a 7.5% drop. The stock dropped $11.92, which is apx 7.5%. On the surface, that seems more than fair. But you need to understand what Market Capitalization (Market Cap) is. Market capitalization is how the news can say who is the biggest company on the planet. It’s very simple:
Share Price x Shares Outstanding = Market Capitalization
Share price is obvious, we started with $157.92 when the market closed today. Shares outstanding means how many shares of a stock are available to buy on the open market. For Apple, that number is currently at 4,745,398,000. That means at the end of trading today Apple was worth:
$157.92 x 4,745,398,000 = $749.4 Billion
After hours the stock drops 7.7%, which means Apple is now worth:
$146 x 4,745,398,000 = $692.8 Billion
That’s a loss of $56.6 Billion in a matter of minutes, because they said they would sell $7 Billion less in a 3 month period. Think about how ridiculous that is. But that ridiculousness is exactly how good investors make money. Do you honestly think that in a few years people are going to give a sh*t how much Apple sold in the last 3 months? Of course not, not in the long run. It doesn’t matter. The lesson is this…
Investors can make money buying things when the market over-reacts. Benjamin Graham (the man who taught Warren Buffett) called it Mr. Market, and said that Mr. Market was bipolar. Sometimes he gets irrationally excited and sometimes he’s incredibly depressed. If you like Apple and think it’s a good company worth owning you want to see Mr. Market depressed about it so you can buy the shares on sale. You want to buy Apple for $56 billion dollars less, because they’re going to sell only $7 billion dollars less.
All told though, since the market started going down… Apple is selling for $415.1 billion less than it was at its peak on Oct. 3. Look around you. Is everybody you know throwing their iPhones in the toilet? Are hipster douches not going into the Apple stores at the mall? Hell no. Apple is selling for 37.5% less, but that doesn’t mean that the company is WORTH that much less (intrinsic value). Now would be a good time to figure out if you think Mr. Market is right or he’s just depressed. If you do own Apple, hopefully you now realize there is no need to panic just because everybody else is. Do you really want to sell your shares because Mr. Market is a cry-baby? Apple isn’t going anywhere anytime soon.
As of right now, Apple is the 4rd largest company in the world. Microsoft is number 1, Amazon is 2, and Google is number 3 based on Apple’s new Market Cap. When companies are worth 3/4 of a TRILLION dollars; any little shift in their price moves the entire market. Apple just dropped over 7% and the entire market is going to feel it. Tomorrow you will see the market down, including most of the stocks or funds you hold. Most people won’t know what’s happening, they’ll panic, they make talk about getting selling out their retirement accounts before the big market crash. But not you… because you know this is nearly all because Apple “maybe” sold about $7 billion dollars less than some smart guys had guessed between October and December 2018.