Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
The consensus explanation for today's action appears to be that the market was reacting to comments from the Federal Reserve Bank of Atlanta Dennis Lockhart that appeared to downplay the possibility the Fed would begin to taper its monthly bond purchases next month. But only last week, Lockhart was blamed for knocking stocks down by hinting that a September start to the taper was possible. It must have been a slow day in the market.
Whether or not today's explanation is accurate (unverifiable), investors -- I use the term loosely here -- have been excessively focused on the minutiae of the Fed's maneuvers. As a result, speculation regarding the Fed's future actions appear to be a significant factor driving short-term stock price changes, despite having very little impact on long-term stock values.
Consistent with today's stock price gains, the CBOE Volatility Index (VOLATILITYINDICES:^VIX) fell nearly 4% today, to close at 12.31. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)
Apple: a legendary investor steps up
What does it take to move shares of Apple (NASDAQ:AAPL), the largest company in the world by market capitalization? Apparently, fewer than 280 characters will do the trick -- assuming those characters appear in the right person's Twitter stream.
This afternoon, at 2:21 p.m. ET, veteran activist investor Carl Icahn tweeted the following:
We currently have a large position in APPLE. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come.— Carl Icahn (@Carl_C_Icahn) August 13, 2013
Four minutes later, he followed up with a second tweet:
Had a nice conversation with Tim Cook today. Discussed my opinion that a larger buyback should be done now. We plan to speak again shortly.— Carl Icahn (@Carl_C_Icahn) August 13, 2013
The stock market's reaction was unmistakable -- see the spike between 2 p.m. and 3 p.m ET:
The stock finished up 4.75% on the day and 2.88% higher than it was at 2:20 p.m., just before the publication of Icahn's first tweet. The latter increase represents roughly a $12.5 billion increase in market value. Did Carl Icahn just increase Apple's intrinsic value by $12.5 billion with two tweets? No, but his presence in Apple's capital alters investors' perception of the value they may realize from owning the shares.
The distinction is important. Note that Icahn didn't say he discussed new product launches or how to compete with Google's Android platform with Apple CEO Tim Cook. Icahn is not an expert in the technology industry, but he is a maestro when it comes to getting companies to cater to the expectations of the investment community, as well as in financial engineering. Expanding Apple's buyback is accretive to intrinsic value, assuming you believe the shares are undervalued, but more importantly, it's about realizing part of that value for investors. That's something every shareholder can understand -- the market made that very clear this afternoon.