Sunday, November 23, 2014

Apple versus the rest of the Tech Market




Academic financial economists stress the importance of systematic risk – the relationship between a companies stock and the market.   However, in the past few months, one company, Apple became the market.  

Question:   Below is data on stock prices for the last three months of some prominent tech firms, Ttech ETFs and the Nasdaq as a whole.   I also list shares outstanding and the beta for the firms.  




Financial Information on Tech Companies
and Market
22-Sep
21-Oct
21-Nov
Beta
Shares outstanding in billons
AAPL
100.6
102.0
116.5
1.26
5.86
CSCO
24.8
23.5
26.9
1.3
5.11
FB
76.8
78.7
73.8
0.75
2.79
GOOG
587.4
526.5
534.8
1.172
0.6784
INTC
34.5
32.4
35.6
0.85
4.84
IBM
191.8
162.2
160.9
0.9
0.9897
ORCL
39.5
38.4
41.4
1.33
4.43
QCOM
76.3
75.0
71.5
1.05
1.66
QQQ
99.1
96.9
103.9
IYW
101.33
97.22
104.72
Nasdq
4528
4419
4713



What percent of gains in market value of the firms belonged to Apple Corporation?

Did firms that had large stock price changes 9-21 to 10-21 also tend to have large stock prices 10-21 to 11-21? 

How closely did the tech firms in this table actually move with the market during this three-month period?

How did investors in tech ETFs fare compared to investors in actual companies?


What does all this mean for the average investor.

Answer on the Impact of Apple Corporation:

Apple was the prime mover of the tech market over the past two months.   The market had a major rally.

Four of the eight tech companies studied in this post lost market value.  

The $93 billion increase in the market value of Apple was 265.1 % larger than the increase in the total market value of all eight firms.



Equity and Changes in Equity for Major
Tech Companies
21-Sep
21-Nov
Diff.
% of Total
AAPL
590
683
93
265.1%
CSCO
127
137
11
30.6%
FB
214
206
-9
-24.3%
GOOG
398
363
-36
-101.7%
INTC
167
172
5
15.3%
IBM
190
159
-31
-87.2%
ORCL
175
184
9
25.0%
QCOM
127
119
-8
-22.8%
35
100.0%


Answer on consistency of Stock Price Changes:

The stock price changes and rank of changes for the two months are presented below.

Comments:

The weakest company in the first month, IBM, was below the median in the second month.  

The second weakest company in the first month Google, was in the middle of the pack the second month.

CSCO and Intel both near the middle in the first month were near the top in the second month.

Facebook the best company the first month had the worse return the second month.

Apple was number 7 of 8 in both months.


Concluding thought:  In some cases poor performance in one month is followed by good performance the next.  In other cases this did not happen.




Consistency of Performance Over the Two Month Period
Diff October
Rank Diff October
Diff November
Rank Diff November
AAPL
1.4%
7.0
14.2%
7.0
CSCO
-5.1%
4.0
14.3%
8.0
FB
2.5%
8.0
-6.3%
1.0
GOOG
-10.4%
2.0
1.6%
4.0
INTC
-6.0%
3.0
9.8%
6.0
IBM
-15.4%
1.0
-0.8%
3.0
ORCL
-2.8%
5.0
8.1%
5.0
QCOM
-1.7%
6.0
-4.7%
2.0


Systematic Versus Unsystematic Risk:  


The beta of these companies range between 0.75 and 1.3.    All of these companies are expected to move closely with the market.   Actual stock prices did not move with the market during this period.   Unsystematic risk was high in the tech sector in this period.


One of the things going on is that the increase in the value of Apple equity became so large the change in the stock price of this one company dominated the tech sector.   For at least one month the change in Apple was the change in Tech.


Use of ETFs: 

The returns on ETFs and Nasdaq are below.  

Index funds are safer for most investors than self-made portfolios.

A stock picker who shunned IBM, Google and QCOM and went really long on apple would have beaten the market.

Also, did some people have inside information on the loss by Facebook and the gain by Intel and Cisco?   This is a harder issue.  



ETFS and Nasdaq
QQQ
-2.2%
7.2%
IYW
-4.1%
7.7%
Nasdaq
-2.4%
6.7%



Concluding thought:  Hindsight is always 20/20.  For most of us ETFs are the better way.  

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