Julie Jason:

The mar­ket takes a bite out of Ap­ple.

Connecticut Post (Sunday) - - Sunday Business -

As I am writ­ing my col­umn to­day ( Thurs­day), the stock mar­ket is still beg­ging for at­ten­tion. This time, it’s Ap­ple.

Ap­ple closed at $ 157.92 on Wed­nes­day and opened the next day at $ 143.98 af­ter fall­ing more than 8 per­cent in the af­ter- hours mar­ket. By Thurs­day’s close, the stock had fallen close to 10 per­cent.

The trig­ger? A Jan. 2 let­ter from Ap­ple’s CEO, Tim Cook, re­leased on Ap­ple’s web­site and at­tached as an ex­hibit to Ap­ple’s Form 8- K filed with the U. S. Se­cu­ri­ties and Ex­change Com­mis­sion. The let­ter re­vised guid­ance for the up­com­ing quar­ter.

“When we dis­cussed our Q1 guid­ance with you about 60 days ago, we knew the first quar­ter would be im­pacted by both macroe­co­nomic and Ap­ple­spe­cific fac­tors. Based on our best es­ti­mates of how these would play out, we pre­dicted that we would re­port slight rev­enue growth year- over- year for the quar­ter.”

Now the tra­jec­tory was shift­ing ... down­ward. And this was not the norm for Ap­ple. As Wall Street Jour­nal re­porters Robert McMil­lan and Tripp Mickle put it: Ap­ple “slashed its quar­terly rev­enue fore­cast for the first time in more than 15 years.”

Quot­ing Cook’s let­ter, “To­day we are re­vis­ing our guid­ance for Ap­ple’s fis­cal 2019 first quar­ter, which ended on Dec. 29. We now ex­pect the fol­low­ing:

“Rev­enue of ap­prox­i­mately $ 84 bil­lion.

“Gross mar­gin of ap­prox­i­mately 38 per­cent.

“Op­er­at­ing ex­penses of ap­prox­i­mately $ 8.7 bil­lion.

“Other in­come/( ex­pense) of ap­prox­i­mately $ 550 mil­lion.

“Tax rate of ap­prox­i­mately 16.5 per­cent be­fore dis­crete items.

“We ex­pect the num­ber of shares used in com­put­ing di­luted EPS to be ap­prox­i­mately 4.77 bil­lion.”

Cook con­tin­ued: “Based on these es­ti­mates, our rev­enue will be lower than our orig­i­nal guid­ance for the quar­ter, with other items re­main­ing broadly in line with our guid­ance. While it will be a num­ber of weeks be­fore we com­plete and re­port our fi­nal re­sults, we wanted to get some pre­lim­i­nary in­for­ma­tion to you now. Our fi­nal re­sults may dif­fer some­what from these pre­lim­i­nary es­ti­mates.”

That was enough. Sellers acted.

When a stock owned by mil­lions of in­vestors changes course this abruptly, it’s a learn­ing op­por­tu­nity. As some­one who runs a money man­age­ment firm, it’s not my place to give you any opin­ions on what in­vestors should or should not do on a par­tic­u­lar stock, so I won’t. ( Plus, in full dis­clo­sure, my firm does own a very small po­si­tion in the stock.)

In­stead, I’d like to fo­cus on two things: ex­po­sure and ex­pec­ta­tions.

If you own Ap­ple di­rectly, don’t for­get that you may own Ap­ple in­di­rectly as well. For ex­am­ple, the S& P 500 has an Ap­ple weight of about 3.4 per­cent. A tech sec­tor ex­change- traded fund might own a large per­cent­age, per­haps 16 per­cent or more. If you own Berk­shire Hath­away shares, you own Ap­ple in­di­rectly. Then think of the sup­pli­ers that sup­port Ap­ple, such as chip com­pa­nies. So, the ques­tion you need to ask is, are you over­ex­posed?

As to ex­pec­ta­tions, don’t for­get that Ap­ple and the other FAANG stocks moved the broad mar­ket on its up­swing, given lofty ex­pec­ta­tions for growth. Ap­ple peaked on Oct. 2, 2018, at $ 232, be­fore fall­ing 39 per­cent.

What about the other FAANG stocks? Face­book is down 40 per­cent from its 52- week high. Ama­zon is down 27 per­cent, Net­flix is down 36 per­cent, and Google ( Alphabet) is down 21 per­cent. The S& P 500 is down 17 per­cent from its 52- week high.

We don’t know if the mar­ket over­re­acted or un­der­re­acted on Ap­ple’s re­vised for­ward es­ti­mates. Only time will tell.

In the mean­time, what’s an in­vestor to do? That will de­pend on his or her per­sonal ex­pe­ri­ence and ob­jec­tives. Do your re­search, limit your sin­gle- stock ex­po­sures, and make sure you un­der­stand the risk you’re as­sum­ing — with any in­vest­ment.

You can read Ap­ple’s 8- K at tinyurl.com/y7l9dqe7

On an­other note: In­vest­ing for retirement through a 401( k) is a far dif­fer­ent ex­er­cise than buy­ing stocks and bonds through a tax­able ac­count. In a fu­ture col­umn, I’ll dis­cuss rules to fol­low to max­i­mize op­por­tu­ni­ties that 401( k) s of­fer, one of which is how to han­dle a down mar­ket. Some bail. If you par­tic­i­pate in a 401( k) plan at work, I’d like your views on the sub­ject. Email me at read­[email protected]­ja­son.com.

Julie Jason, JD, LLM, a per­sonal money man­ager ( Jack­son, Grant of Stam­ford) and au­thor, wel­comes your ques­tions/ com­ments ( read­[email protected]­ja­son.com). Her awards in­clude the 2018 Clar­ion Award, sym­bol­iz­ing ex­cel­lence in clear, con­cise com­mu­ni­ca­tions. Her lat­est book, a cu­rated col­lec­tion of Julie’s col­umns, is “Re­tire Se­curely: In­sights on Money Man­age­ment From an Award- Win­ning Fi­nan­cial Colum­nist.” To hear Julie speak, visit julie­ja­son.com/events.


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