Icahn’s “No-Brainer” Goes To Heck (Manipulation Works Only Most Of The Time)

by Wolf Richter •  • Comments Off on Icahn’s “No-Brainer” Goes To Heck (Manipulation Works Only Most Of The Time)

So things have been a little rough for our tech heroes the last few days. Yahoo reported Tuesday evening that revenues last quarter had dropped again from a year earlier. The stock got hammered after hours. VM reported that revenues were up 15%. Stock got hammered. Seagate reported that revenues were down 3.8%. Stock got hammered and ended 11.2% lower. But the standout was Apple. On Monday evening, it reported very uninspiring results.

Carl Icahn must have tossed and turned Monday night. Still reeling from his Apple losses, he was out there on Tuesday hyping the stock with all his might. They’re all doing it, from Warren Buffett on down, guys with billions of play-money and a loud voice that bounces around the media in a myriad ways so that no one can escape their hype.

A whole industry has formed around them – the Buffett and Icahn watchers, whose recommendations, newsletters, and model portfolios claim to mirror the successes of the Great Ones. They entice the little guy to jump on the bandwagon and multiply the effects of the early movements to drive up the stock further.

These Great Ones buy quietly, which itself, given the amounts involved, moves the stock. Then carefully engineered rumors spread, which drive up the stock further. This is followed by an official disclosure – in Icahn’s case, on Twitter – which is picked up by all the Icahn watchers and the media, and the ensuing hoopla, the interviews, the quotes, the articles in The Wall Street Journal, the pithy pronouncements on Twitter drive up the stock further as individual investors jump into the fray. They all give the Great Ones an opportunity to proclaim why a company is a “no-brainer,” and why the stock should surge, or why a stock that swooned – like Apple – shouldn’t have.

Apple has some, let’s say, issues. It sold 51 million iPhones in its fiscal first quarter, up a measly 7% from a year ago, and way below industry hopes of around 56 million. Its revenue forecast of $42 billion to $44 billion in its second quarter disappointed those who’d hoped for $46 billion, even though China Mobile started offering iPhones and everyone had hoped that it would really do some magic to the numbers. Now it looks flattish, even with China Mobile.

Like so many of our tech heroes, Apple faces a saturated market in the US and elsewhere, and some very tough competitors worldwide that have been eating its lunch. Samsung sold 86 million smartphones last quarter, compared to Apple’s 51 million. Huawei sold 16.6 million, Lenovo 13.6 million. The market that Apple revolutionized is now dominated by Samsung with a market share of 29.6%, compared to Apple’s 17.6% (down from 22% the prior year). Huawei with 5.7% and Lenovo with 4.7% are gnawing on Apple’s sales too. The low end is coming!

Hence, Apple’s dive. To manipulate his Apple shares back up, Icahn tweeted on Tuesday, at 8:04 a.m. Pacific Time:

And look, it worked. AAPL dutifully jumped about $3 a share within a few seconds. But then it fizzled, and five minutes later the tweet effect had evaporated (chart by Zero Hedge).

Maybe he should have taken a lesson from Buffett who is the absolute master at this. He has it all: an avuncular smile, an honest-sounding voice, an iconic presence in the psyche of investors, and beyond all, many billions of dollars that everyone knows he can plow into a particular stock to create some real sparkle.

He buys quietly but massively, and by the time the disclosure hits, the stock is already significantly higher. He gets to be the star on CNBC to announce what an awesome company this is, and what an awesome management team it has, and he palavers about his long-term commitment, etc., etc., and all the news outlets regurgitate it, and no one who is connected in any way can escape it, and the stock jumps. It continues to climb for a while, but when exuberance tapers off, another disclosure appears that shows he bought more stock (this time just a tiny bit). And he is back on CNBC with more awesome things to say about this awesome company, and the media fall all over each other regurgitating it. And the stock jumps some more. And a while later, the whole circus happens again.

Then people forget about it, and the stock languishes, and then it drops, and no one knows why, and they’re waiting for Uncle Warren to show up on CNBC and do his magic. But finally, a disclosure of his holdings shows that the stock is no longer among them. Individual investors are left holding the bag.

Icahn showed up on CNBC’s Scott Wapner and pointed out that these apparently idiot sellers had “completely misinterpreted” Apple’s glorious results and had no clue about its growth opportunities. He saw “a major positive in Apple’s message” and his long-term perspective was “completely unchanged”; in fact, he thought it was “even more compelling for Apple to buy back stock now.”  That’s his strategy. To heck with the iPhone, lackluster sales, and declining market share. He wants Apple to buy back its own shares and goose its stock price through financial engineering, an art at which, it must be conceded, he excels.

Add that $500 million in Apple stock he just bought to the pile he claimed – via his Twitter disclosure on January 23 – to already own:

Which would give him about $4.1 billion in Apple stock, whose 8% dive produced a loss of $328 million in a single day. No wonder he was trying so hard. He has been trying hard all along in his battle to wring a few billion out of Apple.

His relentless barrage of mediatized efforts, including his tweet on Jan 23 about his “7-page letter” with which he was trying to push Apple’s board to buy back more shares in the hope that the buybacks – rather than new and miraculous products and increased market share – would boost the stock price.

And the day before, he’d hyped his increased position:

Turns out, the whole affair was a no-brainer from get-go:

The little guy can’t do any of it. That is, he can do all of it. He can buy some shares of Apple and tweet about it and write letters to the Board and whatnot. But no one will pay attention, and it won’t move the needle, not even a micron. That’s the difference between the Great Ones and the little guy.

But Icahn’s no-brainer ended the day at $505.50 a share, the lowest since October. Back then, the stock was recovering from its prior earnings debacle in September that had chopped off $50 a share, down to $450. Things aren’t getting any better, but the stock keeps recovering after the smack-downs, in part because of the heavy lifting Icahn has been doing, only to get blasted again by a malodorous whiff of reality.

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