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  • The Wall Street Kool-Aid Drinkers Do It Again!

    July 11th, 2007

    I’d hate to be a stock broker. Well, maybe not, because I’d get a commission on every sale, regardless of whether the customer lost money or made money. But trying to figure out the weird morass of financial dealings, and the potential for a company to make a profit or show red ink would give me elevated blood pressure fast. What would I tell the people who called me for advice?

    Now on the surface, it would seem to require a lot of careful work to make projections on a company’s prospects, but sometimes I wonder if those so-called Wall Street experts aren’t just reading crystal balls and tea leaves with some of the conclusions they deliver.

    Take that rumor about a forthcoming miniature iPhone similar in concept to the iPod nano. I suppose the idea has its attractions, particularly when you ponder whether it makes sense to pay full price for the standard iPhone. Wouldn’t it be nice to get one for less than $300. Of course, that’s just the initial purchase price. You’ll still have to pay the same monthly rate, depending on your particular wireless plan.

    Now it turns out that the story about a possible iPhone nano had no substance behind it. Of course, few stories about Apple have any substance at all unless the company confirms it, and they seldom talk about future products, unless it conforms to a specific marketing plan. In the case of the iPhone, it made sense, since there was a six=month frenzied promotional buildup that culminated in an incredible first weekend that blew away all sales estimates.

    However, just the thought of another iPhone was sufficient to boost Apple’s stock price, which promptly dipped a tad when the reports were short-circuited.

    This isn’t to say that buying Apple stock is a bad idea. I still wish I had done something when it was $13 or so, prior to the stock split. But, as a tech journalist, that would be highly unethical, since I’m not supposed to invest in a company I write about. On the other hand, if I had enough money on hand, and took that ride, maybe I’d make enough profits not to care.

    I am troubled, though, when I see stock prices rise and fall on the basis of questionable information, sometimes hardly more than rumors. I’ll never understand the psychology of Wall Street and why slender tidbits that are hardly worth a second glance are sufficient to influence trades involving billions of dollars.

    Oh well, maybe some of the cynics who say the stock market consists largely of overeager paper pushers passing paper money around aren’t so far off the beam after all.

    Unfortunately, critical corporate decisions are often made based not on what is best for the company, its stockholders, employees and, one hopes, its customers, but on how its stock price might be affected. Worse, since you can’t really predict how Wall Street might react with certainty, that’s just an exercise in futility.

    It’s clear to me that Apple isn’t developing its products and sales strategy based on how its stock price will fare from one day to the next. Apple succeeds because millions of people love their products, and continue to buy them. That’s true even when some financial analysts and tech writers predict a dire fate for Apple over and over again. The iPod can’t remain successful, the Apple TV is an abject failure, and how could anyone call the iPhone a smart phone?

    This isn’t to say that every story predicting what Apple might do turns out to be wrong. Take the iPhone. People have been talking about such a thing for years, perhaps feeling that if they repeated it often enough, it would truly come to pass. Indeed, it’s clear that the iPhone was definitely under development for several years, so it’s possible some of the early stories had some factual basis. Or just good guesses or lots of positive vibes.

    Of course, devoted Mac users have hoped for years that Apple would somehow pull off a miracle and win the operating system wars, but it simply never came to pass, although Mac market share seems to be doing a lot better than most expected.

    After the success of the iPod and the iTunes store, the pessimists among us decided that all good things must inevitably come to an end. All right, Microsoft’s Zune didn’t do it, but how could Apple possibly succeed in the deeply-entrenched wireless phone industry?

    Well, clearly, the iPhone has done enough in less than two weeks to even cause Congress to begin to look into the practice of tying a mobile phone to a single company, along with long-term contracts. Would they have done that had the iPhone not taken off like wildfire? They never said anything when the Motorola RAZR first came out.

    Yes, I’m really glad I’m not a Wall Street analyst, or an industry analyst. I prefer to live in the real world. Of course, I do co-host a radio show on the paranormal, but that’s just another twist of reality, right?



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