But then isn’t
Like Argentina beating Saudi Arabia at the football World Cup
But then losing 2-1
Or the All Blacks beating Ireland in NZ because “duh…they always beat Ireland at home”,
But then losing 22-32
Well, I think we’re heading for a major financial surprise
hashtag#activemanagement outperforming hashtag#passiveinvesting
Really, why?
Well, the 5 largest hashtag#Passive Funds have $1.6trn in AUM
And hashtag#apple is the largest holding in all of them
The $200bn hashtag#QQQ has an 11% weighting,
The $1.1trn S&P500 hashtag#etfs have 7%
The $315bn Total Stock market hashtag#etf has 6%
And now the share is down 6%, (a $180bn hit), in 3 days after China bans the use of Apple products by Central Government employees, local government workers, and state-owned companies
Yes, but a 6% fall on an 11% position is only a -0.66% hit to performance
Hey, that’s the ANNUAL fee differential between many Passives & Actively managed funds that don’t hold Apple!
eliminated in 3 days!
And others like Skyworks & Qualcomm also fell…
Anyway, I worry this is just the start
What do you mean?
Why will China stop with only those employees, Americans banned Huawei equipment for all citizens..?
Now China is 19% of Apple’s revenue – a cool $74bn so you wouldn’t want that disappearing at 30% operating margins, it would leave a massive hole in estimates
And why is all this happening on the eve of their iPhone 15 launch?
Let’s take a look at MY downside scenario
The demand estimates & production plans for the iPhone15s were made long before this ban
And the phones have been assembled
But if sales in China are lower, then that means excess supply for the rest of the world
At a time when:
– Covid savings have run out,
– The consumer is stretched – Credit card delinquencies are rising,
– iPhone-supporting telcos are paying more interest on their huge debt loads, and
– A chunk of iPhone upgraders have spent surplus cash on Summer travel & Taylor Swift concert tickets
Plus there could be a bunch of used Chinese iPhones about to hit the refurbished market
Who knows, but maybe Apple will have to discount these iPhones to shift them
Well, the rumour is some iPhones will be priced $100 higher – I guess someone has to pay for the titanium, not stainless steel shells and fancier camera.
Good luck with that!
Maybe there’s an iFlop on the way …
But “it’s a quality company” with a 170% return on equity (ROE)
It sure is
But buybacks have reduced their equity
And when you pay 46x book value (equity), YOUR return on equity is 170% / 46 = 3.7%
Anyway, Estee Lauder is perceived as being a “quality company” with a 41% ROE last year
and it hasn’t stopped the share falling 38% this year…
OK, so what’s your upside scenario?
Do you mean from a $2.8trn market cap base and 30x earnings…?
Next..
All I’m saying is that financial markets are always full of nasty surprises
Even for the Passives
You know when we THINK something’s a certainty?
Y