Wall Street is from Mars, Silicon Valley is from Venus

The widely varied reaction to Apple's earnings this week exemplify the divide between Silicon Valley and Wall Street.

All markets are predictably irrational. James Martin/CNET

The dichotomy of reactions by Silicon Valley and Wall Street to Apple's most recent quarter are so far apart it's comical. At least, it would be comical if it didn't involve tens of billions of dollars flying out the proverbial window.

Apple posted a monster Q1 , logging a whopping $54.5 billion in revenue and $13.1 billion in earnings. The company sold 47.8 million iPhones and 22.9 million iPads in the quarter, all records for Apple.

Apple's reward? A brutal sell-off on Wall Street that dropped the company's share price by 12 percent to $450.46. More than $50 billion in market capitalization gone in 24 hours.

Silicon Valley's reaction? Widespread shock and derision. Here were some of my favorite quotes from the tech community:

  • "Long story short, a lot of people are either playing the market today or being pretty stupid. Not quite as stupid as last year, but stupid nonetheless. As a result, I'm making good on my word and buying Apple stock since it's below $500 a share. It would be silly not to. Just look at the numbers." ~MG Siegler
  • "To say that investors are idiots, really is an unfair dig at idiots." ~ Mark Sigal
  • "At a price-earnings ratio of under ten, Apple is insanely cheaper than Amazon, which sports an ridiculous P/E of 3,583, believe it or not. And cheaper than Microsoft, which at least is sane at about 15, and Google, with a slightly higher 23. None of which, when it's all stacked up, seems to make any sense at all." ~ John Koetsier
  • "That's why I don't think there's any one thing that's causing investors to flee. Instead, there's a bigger, more nebulous worry: When people start talking about Apple "hitting a wall" or losing its "magic," what they're really saying is that they fear some deeper void at the firm, a lack of the passion and innovation that made it so extraordinary for so long. There's no data to back up this claim; nothing in this quarterly report supports it. It's just an inchoate sense of dread, one sparked by Steve Jobs' death and confirmed by every slightly negative story one hears about Apple." ~ Farhad Manjoo

To say the tech community isn't happy with Wall Street would be an understatement. But the truth of the matter is that there is some logic to Apple's short-term stock drop:

People seem to forget that the stock market, like any market, is made up of people. Their emotional whims result in fluctuations that some will consider rational and others will consider insane. What, you don't think Wall Street finds some of our valuations for startups utterly insane? This is why I adhere to the school of technical analysis when it comes to investing in the stock market.

Perhaps Apple, Facebook, and the tech community's roller coaster ride on Wall Street will result in more tech companies staying private instead of heading toward an eventual IPO. Mark Zuckerberg didn't want to have a Facebook IPO for these very reasons, and other companies are finding ways to delay an IPO.

What all the humbug about Apple's earnings tells me though is that Silicon Valley and Wall Street simply aren't on the same page. In fact, they aren't on the same planet. Wall Street is from Mars, Silicon Valley is from Venus.

Here's how I see it: all markets, big or small, are predictably irrational, because they are simply collections of irrational human beings. None of us is innocent or immune. Remember that before investing on Wall Street OR in a startup.

 

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