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Time To Sell Apple Inc.? Watching Hedge Fund Managers For A Clue

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Carl Icahn is very pleased with Apple Inc. (NASDAQ:AAPL)’s performance since he disclosed his $1+ billion position in August 2013 when the stock was trading at dividend and split-adjusted $65 per share. Apple shares jumped nearly 5% following his tweet.

Eight months earlier Jim Roumell thought Apple Inc. (NASDAQ:AAPL) was cheap and he bought some shares at $525 (or today’s dividend and split-adjusted $72 per share). He increased Apple’s weight in his 13F portfolio to 6% (fifth largest position) by the end of March as Apple shares dipped below $450. He boosted his stake by another 40% during the second quarter of 2013 as Apple shares touched $390 per share. Apple’s weight in his 13F portfolio approached 10% at the time.

Carl Icahn and Jim Roumell on Apple Inc. (AAPL)

You probably haven’t heard of Jim Roumell before. Insider Monkey follows mostly hedge fund managers, billionaire investors, and a few value investors. Roumell is a deep value investor with a strong backbone. He doesn’t invest in a stock unless he feels comfortable with owning the entire company. He is contrarian. So, he is probably buying a stock when everybody else is selling and he is probably selling when everybody else is “very pleased”. He isn’t the kind of investor who regularly gambles with large-cap stocks. Most of his investments are in small and micro-cap stocks where he believes he can get an edge over other investors by doing scuttlebutt research.

We recently talked to Jim Roumell and asked him about his investment approach. His answer explained why he kept betting on a declining stock nearly 2 years ago:

“We ask ourselves always what our investment edge is.  And edge is either information edge, where we have better information and this again, is why we really rely on industry contacts that really help us understand what’s going on behind the curtain. We have analytic edge which is difficult to get but you can get it when you have superior information where everyone knows the same information but you’re analyzing it in a superior way. The third is a behavioral edge, which was in Apple where we have no information that anyone else doesn’t have, we have no analytic edge, we just have a behavioral edge and a willingness to be contrarian where others are kind of losing their mind a little bit.”

Jim Roumell currently manages around $200 million and managed to deliver an annualized return of 8.8% vs. S&P 500’s 5.2% since the inception of his company. He likes to invest in companies with strong balance sheets that have multiple shots on goal. He got involved in Apple after he noticed a big sentiment change among investors. “Everybody hated it at the same time. Profit margins were going to fall from 38% to 30%, no product innovation” were the words Roumell used to describe the sentiment shift towards Apple nearly two years ago.

Icahn’s August 2013 tweet changed the sentiment almost overnight. That lasted less than a month.

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