Why I’ve been shorting AAPL

(and plan on continuing)

Philip Valenta, MSF
Jan 8, 2019 · 12 min read
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Some years ago, I was bike commuting through downtown Seattle on my way back home. While stopped at a traffic light, I glanced across an open lot at the side of a sizeable concrete parking structure. Occupying much of the middle was a giant advertising billboard hosting an Apple ad. It was simple. An iPad and an iPad Mini, side by side, each displaying the same music app, each with a human finger touching a virtual piano key on each respective screen.

In the upper right corner, the universally recognizable company logo and the product name. iPad.

It was one of the original ads for the mini. That was 5 ½ years ago. I snapped a photo with my corporate-supplied iPhone, and this is what I wrote in my subsequent Facebook post:

A friend responded that they couldn’t go a day without seeing the same ad five or six times. That was the first moment that things really started to turn for me. I was skeptical that the company could innovate without the late Steve Jobs at the helm, and this ad wasn’t helping. My suspicions grew when another friend later told me that, as a temporary contractor for Apple during the Jobs days, he had witnessed a toxicity in their company culture — an atmosphere of finger pointing and superiority complexes — that you could cut with a knife.

Mind you, I had gone (somewhat) all in. I was the owner of several Mac desktops and laptops, more than one model of iPhone, a heavy user of multiple Apple software applications. Over the years, my hardware arsenal included a PowerBook, a MacBook, an iMac, a Mac Mini, a 2nd gen iPod mini, an iPhone 3GS, and an iPhone 5. I was digitizing my personal life more everyday as I scanned and ripped additional photos and music into iPhoto and iTunes and began ridding myself of the physical copies. I used their productivity apps, I ran a home server using their software, I increasingly used the command line. Eventually, it spread deeper into the family when my mother made the switch to Apple with an iMac of her own.

It wasn’t lost on me that there were many others engaging in the same open-arms pattern of adoption, like whales on krill. It was good shit. The mobile devices were unrivaled across the board, as were the computers.

I saw the latter firsthand as a network and end-user support specialist for a flagship community college.

There was an era where it was crystal clear which brands of hard drives and motherboards in which desktops were failing regularly, and which weren’t; which machines played well with other systems, including printers and related services, and which didn’t; which stations networked better than the others, flawlessly connecting to shares and responding to remote access, and which ones did not.

To spell it out: It was essentially an Apple versus Dell/Microsoft affair, and the Macs in our labs and classrooms were repeatedly showing up their counterparts.

At various stages, I went long AAPL stock in some form or fashion and made a little bit of cash.

That was then.

I’m no longer in the Cult of Mac.

Moreover, a little under a year ago (as of the publication of this story), I opened a small-ish short position in AAPL. While it was admittedly a tad bit early, the position is coming into its own. The reasons for why it finally seemed time to put my money where my mouth was are outlined below.

They’re not innovating

I’ve described this to some degree already. Fast forward to today. I still don’t see that same world-renowned innovative streak of yesteryear.

The company is now several iterations into each of their flagship products, and none of them are that novel. The iPad Pro is still an iPad. The 4th gen Apple Watch hasn’t furthered their case. Besides, several companies make wearables. Why do I need Apple’s? Smart-home systems? Hmmm…same. What distinguishes their products from any other company’s anymore?

We all know that the introduction of the iPhone itself was innovation at work. If I were feeling generous, I’d call every new feature of an iPhone thereafter a refinement, merely. Changing the port on the iPhone doesn’t make the iPhone something else. It’s hard to call that innovation. Such a redesign may represent little more than proprietary splendor.

iPhone sales are currently slipping. But more importantly, there’s nothing to take over in the wow department for the consumer. The reality that smartphone sales growth has been atrophying across the board, and not just for Apple, is not news. So why isn’t Tim Cook better prepared than this? All he’s got are some pep talks for the investment community, along with some drivel about slowing Chinese markets and “fewer iPhone upgrades than we had anticipated.” Really?

Here’s my reading between the lines: “We’re not confident about what the next big thing is.”

Even if part of the grand plan is to augment their service offerings, they’re certainly not alone in that, either. The competition is stiff, and they are not trailblazing.

From my vantage point, they are increasingly chasing the dragon, unable to approximate the initial highs they once enjoyed. They are decreasingly first to market in any area. Let’s face it, they’re not leading all that much anymore, they’re following. Followers don’t deserve such massive equity valuations, do they?

Quality has declined

The company still makes great hardware, don’t get me wrong (though there is that small matter of the bent iPad Pros that Apple — taking a page out of Trump’s playbook — is attempting to dismiss into oblivion or get the customers to shoulder). This is the case especially where it comes to their computers. Powerhouses they remain, just like the old ones that are still running after a decade or two (or more).

However, the quality of their software offerings declined.

Server software as well as operating system versions started to suck it up, making for frustrating computing experiences. Think of the parallel of Microsoft’s former Windows Me, Vista, and 8, for instance. Word on the street has it that the embarrassment continues with macOS Mojave.

Nowadays, if I were going to spend the extra buck on a Mac at all, I’d make sure it was a model I could more easily tinker with. Once I had it in my possession, I’d install Manjaro and VirtualBox and run whatever suited my fancy; I wouldn’t bother with their software. In fact, I wonder if they make any readily available applications that top their opensource equivalents anymore.

As for those bent iPads, hopefully for them it’s not a sign of things to come.

Macroeconomic considerations

Speaking of an extra buck, many folks may be more careful with it. Burdened by high credit card debt, crushing student loans that can never be repaid, big-ticket auto loans, and/or mortgages born of a housing market gone apeshit, would-be consumers might soon exhibit signs of retail fatigue.

Tax season and rising healthcare premiums with resetting deductibles make for a tighter situation, and Apple consistently has some of the most expensive tech out there. Consumer confidence took a hit in December. Not to say that people aren’t consuming, but how interested are they in the same-old same-old when they do let go of that dollar? Furthermore, are they going to buy new devices or keep their old ones, since ever more computing heft is borne by the cloud?

Customers are scrappier (and more fickle) than they thought

In other words, Apple’s business model has been too dependent upon consumers as hostages once they’ve been ensnared in the ecosystem. That relationship has been taken for granted.

If your seemingly impossible to open iPhone or laptop stops working, you’ll buy another one; if you keep all your precious files in the cloud with them, you’ll continue accessing them via their devices; if you own multiple devices of theirs, all with proprietary cables and adapters and doohickeys and whatnot, you’ll be loathe to cash in on all that investment of money and brand loyalty. If they make everything look pretty and pretend it all works seamlessly together, you’ll remain hypnotized. You won’t leave. Rather, at each decision point, you’ll double down.

Not so. The realization spread that the devices could be…(gasp)…fixed, that upgrading was not the only option. iFixit was a direct response to the lack of official Apple guidance on product repairs. Third-party replacement parts like batteries and repair tools began appearing in addition to the new manuals. We became familiar with terms like spudger.

If you didn’t want to roll up your sleeves and get your hands dirty, you could pay the third-party hardware repair techs who were cropping up to do it for you, so long as it cost less than the upgrade route.

As for brand loyalty or the ecosystem, turns out it’s not that painful to switch. This is true particularly if the price is right and the alternative product is solid, perhaps even more interesting, easier to tinker with, and/or poses next to no barrier to entry.

Similarly, it’s not so difficult to use multiple platforms and products after all. We’re doing it all the time, or outright switching apps like mad people, or we’re just committing less as individuals to begin with. Developers are helping us do it all the more.

Google Drive for productivity, Odrive for multiple cloud storage accounts, Spotify for music, the list goes on and on. And then changes. Simultaneously, many of us sidestep “features” that amount to some attempt on the part of a software developer to trap us.

They’re not consumer focused anymore

I think if they were, they’d be more obsessed with the user experience and related details, not just trying to shove more releases down throats. They’d be inspiring people to do greater things with what they put at their fingertips, but there’s nothing compelling enough about their latest gadgets to provoke people to upgrade en masse anymore.

Their success wouldn’t hinge on their way of marketing, the psychological game of convincing the consumer to skip the critical thinking and instead embrace how good it is for them that they’re stuck in the matrix; or, come to believe that they are better versions of themselves with Apple products and services in hand than they are without. Seriously, the latest round of Apple Watch commercials? C’mon.

The cool-factor is going…going…

The company has long been selling an image, a lifestyle, a status that its products were supposed to encapsulate. It was superficial and it worked, but it’s losing its sheen. Things are becoming tired.

Apple products are not the coolest in the room anymore, even if they are the most expensive, and neither are the kids who own them. These days, it’s more impressive to see something we haven’t seen before, something with a considerably different look and feel than what we have in our own pockets.

What is a new iPhone except a new and slightly improved iPhone? How cool is it, really, that everybody in the room has owned one at one time or another? Oh, you have an iPhone too? I’ll bet I already know what it can do.

It’s not going to enhance my life all that much, nor does it look that different than the last one, nor is it the boon to my status that it used to be. For a little while, Apple was able to maintain at least the latter by offering a white iPhone that cost more and was limited in quantity; a functional ploy.

Besides, not all of us want to be like everyone else. Not all the time. And when we do, what we collectively latch onto is always more fleeting than yesterday. Actually, these days, difference is cool, if anything is. Diversity is where it’s at; why wouldn’t that carry over to the products we chase, as well? A broader choice of iPhone body colors isn’t going to cut it.

But back to shop talk. As for Apple’s computers, the hip kids are building their own systems in larger and larger numbers. Makers and Raspberry Pi, anyone? That, or they’re purchasing gaming rigs from Corsair and Alienware, and they’re returning to versions of Windows or Linux distros to run them.

Where does Apple’s closed-tech orgy fit into that definition of cool?

As for gaming cool, the best consoles come courtesy of Sony, Nintendo, and Microsoft (Apple had a gaming console many moons ago). Meanwhile, with respect to corporate chic, business and other productivity-oriented users are perfectly content with Microsoft, Dell, and HP once again.

Warren Buffet


Yeah, I’m shorting because of Warren Buffet.

Well, maybe not Warren Buffet, the person, per se, but because of what his interest in the company represents. I see two issues with it:

  1. Investment without a precise understanding of the company’s products and the general trends within that corresponding industry
  2. Copycat investing by those who emulate the Buffet/Berkshire Hathaway portfolio

Buffet has been known to downplay the importance of individual products and unit sales in favor of highlighting how the company is managed and the stickiness of that aforementioned ecosystem. He has maintained his stance, pumping money into the stock, while conceding that he doesn’t understand the underlying technology all that well. I would argue that he doesn’t get the general market trends, either. (Additionally, it’s been in the wake of some not so stellar calls on IBM.)

Investing in something you don’t know much about doesn’t come highly recommended. When things go against Apple and their products, it may not matter how well managed the company is and customers may free themselves from the fly strips anyway.

Beyond Buffet’s own growing enthusiasm for the stock in spite of his self-deprecatingly mediocre comprehension, there’s the question of other investors having followed suit because, hey, it’s the legendary Warren Buffet at the helm of Berkshire Hathaway. Needless to say, copycatting has never been a sound investment strategy.

My guess is that Buffet’s exuberance and the monkey-see, monkey-do betting have contributed to stock price inflation.

As an aside, Buffet had been quoted as saying that he would love to see Apple shares decline in price so that he could purchase more, although I’m not certain that the pounding the stock has taken over the last few months is quite what he had in mind. I’m sensing the potential for a face-palm moment on the horizon.

MVP as its own investment justification

Also not a sound investment strategy is jumping on the bandwagon because something is already the most valuable and talked about thing on the block. Bad idea. That’s bubble behavior.

Simply put, when Apple’s status as the most valuable company in the world itself became justification enough to invest in the company, people were bound to burn themselves. At that point, the story of the fundamentals is lost and you’re chasing returns. That usually means scraps for you, if you get anything tossed to you from the dinner table at all.

What’s more, what do you really expect the upside to be moving forward from there? You’re late to the party. When everyone and their mother is shouting about something, take my advice: walk away. There’s no real money to be made there anymore — it’s done been harvested. You’ve missed the boat, and it’s alright. Move on. There are lots of other ships with their own timetables at port.

Fortunes are forged by taking early or contrary positions, more often than not, as opposed to bringing up the rear. Remember “fearful when others are greedy”?

Final thoughts

Today, I rock a Dell laptop designed for business users. It’s several years old but does what I need it to, especially with a new SSD. I still own one of those iMacs and the Mac Mini I mentioned previously. Though they are ancient by today’s standards, they are strong workhorses. Somewhere along the way, I collected a 3rd gen iPod Nano and a Shuffle that were unwanted (my iPod Mini was stolen long ago). The e-stuff is piling up, to be dealt with later.

I’m the satisfied owner of an older model Samsung Galaxy smartphone, my second, though my iPhones linger (they make great traveling companions, particularly in Latin America). When computing, I rely on a range of opensource software applications combined with proprietary cloud subscription services.

I’m a more pragmatic person these days. I believe in the basics regarding most aspects of life. Priorities have been adjusted or renewed. Distill, unclutter, examine, learn, grow. I’ve finished with the excesses of yesterday and I’m stretching out my upgrade cycles. The devices are durable and my household is saturated enough with tech as it is. I leave it to others to power the economy with their consumption.

It’s within the realm of possibility that I’ll never buy another Apple product again. Of course, I understand that others will. Be that as it may, I’m under the impression that Apple’s stock is currently overpriced. That is, until they once again string a more noteworthy and coherent strategy together, for starters.

In the meantime, clever management can’t make up for shortcomings in overall vision. No doubt, Apple will be around for a long time, same as Microsoft. However, also like Microsoft, they will probably go through a period of lackluster performance before they find their groove again, learning lessons Microsoft can say are behind them. Victims of a peculiar type of self-inflicted hubris, they will also fall out of favor, at least for a time. When and how remains to be seen, but that doesn’t change the what.

Personally, I’ve chosen to go against the crowd and get off the bus.

Stay sharp.



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