Why Apple analysts under-perform vs. Apple bloggers

fortune comparison

[Source: Fortune (Click to enlarge)]

Apple 2.0, the blog maintained by Fortune magazine’s Philip Elmer-DeWitt, has an on-going feature in which he (with the help of some number-crunching elves) compares the “amateurs” and “professionals” who analyze and forecast Apple earnings. (For accuracy in interpreting the previous sentence, where you see the quotation marks, think air-quotes.)

While the chart you see to the left (if reading this on my blog) is labeled “amateurs” vs. “professionals,” today’s quarterly update of “bloggers vs. analysts” by Elmer-DeWitt is headlined (again, think air-quotes): The “bloggers nail” it, the “pros” miss by a mile. Since Elmer-DeWitt is, himself, a blogger, I assume he knows the word “blogger” is not a synonym for “amateur” so I’ll assume (as I used to back before bloggers got paid to maintain blogs for Fortune magazine) that the word “amateur” in this context is more related to latin and french origins of the word that stress doing something “for the love of it” rather than in the more common understanding of the word, an example of which might be the following statement: “Only amateurs make this kind of mistake.”

But I digress (as is my primary style of blogging): correcting Elmer-DeWitt is not the purpose of this post.

This post is to propose a theory as to why those who get paid to forecast earnings for investment firms or investment-related research organizations consistently under-perform those who forecast earnings for personal or corporate passions or in-direct business purposes.

First, a disclosure. This theory relates to economics and when it comes to economics, I’m a (for accuracy purposes, I’ll use words other than amateur): dabbler, dilettante, hobbyist, layman, nonexpert, nonprofessional, potterer, putterer and tinkerer.

So, here’s my theory: Analysts who get paid by research or investment firms to follow Apple feel pressured to not be overly optimistic — or, as we who dabble in hobbyist-punditry of Apple would say, to not enter the Reality Distortian Field. Those who are free to be Apple fans have no constraints on their (our) optimism. They (we) are free to believe Apple earnings will always be really great, better and better, incredible and awesome. That’s what living in the Reality Distortion Zone is all about. That is the cult of Mac et al.

I could continue with this post, pointing to those who can make convincing arguments that Apple is priced at a historically low valuation and to others who believe it is a bubble about to bust. That’s not my point. Frankly, I forgot what my point was (as is my primary style of blogging).

Oh, yes, now I remember.

As much as I wish there was another company that competes with Apple for making my professional life a little easier, better, more fun, there isn’t. I have been, and will likely be for the rest of my life, in the Reality Distortian Field. The best I can hope for is to remain aware that I’m there, and not in actual reality — that people who run Apple can and do make mistakes and wrong judgements and are, frankly, smug, arrogant assholes too much of the time.

But as long as I walk into an Apple Store and see old and young, hip and lame, glee-clubber and jock, customers nearly desperate to spend money with them, I’ll continue to over-estimate their potential.

[Disclosure: In an IRA, I own some Apple stock. Not enough, however (as is my primary style of investing)]

Somewhat related bonus link: While having nothing to do with Apple stock or bloggers, here’s an interesting blog post by a stock trader on what he believes is the difference in analysts and traders.