Apple 2.0

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Apple analysts: 'Prisoners of momentum'

February 9, 2013: 6:53 AM ET

How could so many analysts have been so wrong about Apple's share price?

CGI's Besenius

CGI's Besenius

FORTUNE -- I agree with almost everything James Stewart writes in his Saturday New York Times opinion piece "Following a herd of bulls on Apple."

He's right when he points out that the overwhelming majority of Apple (AAPL) analysts who were saying "buy" in September when Apple peaked at $705 were still saying "buy" in November, when it touched $505.

He's right that sell-side analysts are congenitally biased toward "buys," which is where they make their biggest commissions, especially with a stock like Apple.

He's right that they, in his words, extrapolate from recent performance data; chase momentum; want to please their customers; and show a tendency toward herd behavior.

Where he loses me is when he singles out Carlo R. Besenius, founder and chief executive of Creative Global Investments, as the hero of his story.

"It may be no coincidence," Stewart writes, "that the only analyst who even came close to calling the peak in Apple's stock runs his own firm and is compensated based on the accuracy of his calls."

It's true that Besenius downgraded Apple to a "sell" in early October, when Apple was trading at $685 and that he lowered his price target to $420 in December. (We actually wrote about that call. See A classic Apple slingshot.)

But Stewart forgets that Wall Street was full vocal Apple bears last fall -- including Seabreeze Partners' Doug Kass, The Street's Rocco Pendola and the New York Times' own Joe Nocera (See Andy Zaky is loaded for bears.)

I see Besenius as a different sort of beast,  one of those Apple analysts -- ACI's Ed Zabitsky comes to mind -- who make a name for themselves as contrarians and don't know when to stop.

Take, for example, Besenius' most recent Apple note -- dated Jan. 24 -- in which he sticks to his 3-6 mos. price target of $380 and advises clients to borrow Apple shares and sell them short.

Apple had a bit of a rally this week and on Friday it hit 478.81.

If they followed his advice, Besenius' clients -- who according to Stewart pay him based on the accuracy of his calls -- would be looking at some major losses.

Ironically, the quote with which Stewart ends his article, chosen to apply to the herd of Apple bulls, works as well for bears like Besenius.

"When a dog barks, if the dog barks all the time, you stop paying attention." -- Bruce Greenwald, professor of finance and asset management at Columbia Business School

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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