Buy Google, Sell Apple and Other Nonsense

Why these hot stocks aren’t likely to make you wealthy.

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You can learn some valuable lessons from the saga playing out endlessly in the financial media about the plight of Apple (AAPL) and the soaring stock of Google (GOOG).

According to Yahoo! Finance, Apple closed at $702 on Sept. 19. On March 8, it closed at $403. Google has moved in the opposite direction. It closed at $727 on Sept. 19 and at $831 on March 8.

What were the analysts saying about Apple and Google during this period of gloom and doom for Apple and soaring prices for Google? On Oct. 9, responding to concerns of a 10 percent drop from Apple’s all-time high, Sterne Agee analyst Shaw Wu and Topeka Capital Markets analyst Brian White expressed “optimism” about Apple. White justified his view by noting that Apple was the “one bright spot” seen by component suppliers.

An article in the January 19, 2012 issue of Smart Money noted that analysts gave Apple stock more positive ratings (“buy” and “outperform”) than any other stock, according to Thomson Reuters.

What about Google stock? An article by Jonathan Moreland on Oct. 11 titled "Insiders Sell Google, LinkedIn" observed that following the trading behavior of company executives can be useful to monitor, while cautioning that this information was not a buy or sell recommendation. Moreland noted that Larry Page, the CEO of Google, sold over $31 million of Google stock. Moreland is the author of "Profit From Legal Insider Trading".

Over at the aptly named Motley Fool, on April 17, Alyce Lomax made the case for why she “might sell Google.” Her main concern was the different classes of Google stock, which she described as “over the top”. By structuring these classes of stock, Lomax felt Google had “just pushed past the boundary of what seems acceptable” to her.

Others had tepid predictions for Google stock. On June 6, a blog post on Seeking Alpha noted that, according to Standard & Poor’s recommendations, the company was listed as a “hold,” with an estimated 12-month target price gain of 104.02 points. In his May 3 article titled "Google-Why Things Will Get Much Worse-Sell" in Forbes, Adam Hartung pulled no punches. He detailed a litany of reasons why Google was not a “good long-term trade for investors.”

The financial media is riding the current wave of interest in Apple and Google stock, breathlessly reporting which hedge funds are dumping Apple and buying Google, as if this information was really helpful to investors.

The reality is that Apple and Google are fairly priced at present, taking into account all publicly available information about both companies. This information has been analyzed by millions of traders. Efforts to find mispricing in these (and other) stocks is gambling and not investing. What drives the price of all publicly available stocks is tomorrow’s news. The pathetic track record of analysts’ predictions teaches us that no one knows tomorrow’s news.

My advice to investors is to ignore all the hype about whether Apple stock will continue to tank or Google stock will continue its upward trajectory. Trading based on the musings of your broker, adviser, or the self-styled “media experts” will certainly enrich them, most likely at your expense.

Dan Solin is the director of investor advocacy for the BAM Alliance and a wealth adviser with Buckingham Asset Management. He is a New York Times best-selling author of the Smartest series of books. His latest book, 7 Steps to Save Your Financial Life Now, was published on Dec. 31, 2012.

The views of the author are his alone and may not represent the views of his affiliated firms. Any data, information, and content on this blog is for information purposes only and should not be construed as an offer of advisory services.