Apple Inc. (AAPL): Smart Money Underweight, Dumb Money Overweight

“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…everybody hated it at the same time. Profit margins were going to fall from 38% to 30%, no product innovation,” Roumell said.

Roumell is a contrarian investor who started buying Apple at above $500 and kept buying the stock as it fell below $400. His timing wasn’t great as Apple shares lost a quarter of their value after he started buying. Recently he sold his Apple Inc. holdings. He says Apple may still be undervalued but they seem to execute and the stock can no longer be described as out of favor. He acknowledges that they just came off of a phenomenal iPhone 6 sales period and the company has a very strong ecosystem. However, he thinks Apple Inc (NASDAQ:AAPL) is still a hardware company and he would value it at 11 or 12 times earnings plus cash. The company is currently trading near these values and there is no margin of safety for investors. He says “it could still work but the easy money is made. We don’t pretend to know enough about trying to predict future sales cycles on Apple. At the price we bought it we just didn’t think we have to get a whole lot right.”

We believe Roumell’s comments explain why smart money isn’t crazy about Apple Inc. (AAPL) as much as retail investors. The easy money is made and at a market value of $725 billion, there is no margin of safety for investors.