The Buying Opportunity

A large investor sold a big block of Apple shares this morning and that was a big enough deal that it made my news stream. He feels that the stock is overvalued and that Apple is having some product issues as well as being too dependent on China. It’s on the heels of Carl Ichan dumping his huge stake in the company a couple of weeks ago. That could be although it’s not really our topic this morning. Instead, think about how the stock market works. You can’t sell a stock unless someone wishes to purchase it from you (or the company decides to buy back its own shares). The real question at that point is price, although there are other factors at play as well.

When I got out of college I was fortunate enough to have an older friend who was a very smart investor. He told me to read the Graham and Dodd classic book called Security Analysis and to live by what the book said when it came to investing. As it turns out, Warren Buffett was giving out the same advice (he’s done pretty well by its principles, wouldn’t you say?). I have this on my mind because I spend a lot of time consulting with start-up companies, most of whom are out trying to raise investment. Graham differentiated between investment and speculation, the former “promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” Part of what I work on with these companies is helping them become the former – good investments – and not speculative, although it’s fair to say that most start-ups contain some elements of speculation since they don’t really have long track records.

Back to Apple.  No one would consider Apple a speculative investment and yet someone who is supposed to be sophisticated in the ways of the market has determined that it no longer meets his valuation and that this was the time to sell before the value declined further. Another investor decided that the price is low enough to purchase shares worth over a $1 billion. That’s our point today.  First, whatever we do in business must be able to be seen through the lens of value.  Second, we shouldn’t allow one person’s assessment of the value – expressed as what they’re willing to pay for your product or service – be thought of as gospel.  For every seller – every person who thinks you’re overpriced – there is probably a buyer – someone who sees the value in what you’re doing as well as the upside at the same price.  That applies not just to buying a stake in your company but in purchasing your products or services  as well.  Make sense?

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Filed under Consulting, Reality checks, Thinking Aloud

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