Apple stock drop blamed on huge hedge funds

The recent freefall in Apple's stock price was triggered by massive selling from several large hedge funds, according to Reuters.

CNET

Hedge funds that drove up the price of Apple's stock were also responsible for driving it down, Reuters reported yesterday.

After reaching a high of $705 in September, shares of Apple started getting battered in the fourth quarter.

The stock was especially hit hard after Apple revealed its fiscal first-quarter results last month, numbers that disappointed Wall Street. The company achieved record revenues. But some analysts and investors worried that higher competition and lower profit margins mean that Apple's best days are behind it.

As a result, many of the hedge funds with huge positions in Apple dumped their shares. As just two examples cited by Reuters, Omega Advisors sold its entire position of 266,000 shares last quarter, while Viking Global Investors got rid of 1.1 million shares.

A few funds sold only a small portion of Apple shares while others took advantage of the declining price to add to their positions. But the downturn continued merrily on. In trading this morning, Apple shares were hovering around $466.

One analyst thinks the stock also dropped because it initially rose too high, too quickly.

"The stock just went up so much in early 2012 and then was coming back to Earth," Justin Walters, co-founder of Wall Street research firm Bespoke Investment Group, told Reuters. "Three months from now, we'll be seeing a lot of the people who sold starting to pick it up again."

One of the hedge fund managers who bought more Apple stock during the decline is now leading a charge against the company, calling on it to share more of its wealth with investors.

Last quarter, Greenlight Capital's David Einhorn added 20 percent to his position in Apple stock, ending up with 1.3 million shares, Reuters noted.

Last week, Einhorn sued Apple to block a shareholder proposal that would keep the company from issuing preferred stock.

The fund manager believes Apple is too cautious with its cash, blaming it on a Depression-era mentality. Apple CEO Tim Cook dismissed the lawsuit as a waste of time and money but said the company is looking at ways to return more cash to its investors.

About the author

Journalist, software trainer, and Web developer Lance Whitney writes columns and reviews for CNET, Computer Shopper, Microsoft TechNet, and other technology sites. His first book, "Windows 8 Five Minutes at a Time," was published by Wiley & Sons in November 2012.

 

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