As somebody who follows the stock market and Apple’s stock performance relatively closely, Fortune’s article about Andy Zaky was an absolutely pulsating read. However I should probably give a bit of context.
Andy Zaky is one of the most famous Apple share analysts, and has been since he came onto the scene a few years ago. At the height of his powers, his newsletter Bullish Cross had 700 paying subscribers, and he also set up an Apple only hedge fund with a minimum investment of $250,000. He made a series of incredibly accurate predictions about the Apple stock, including forecasting Q4 2008 earnings to within a penny.
Everything was perfect, until Apple’s share prices decided to start fluctuating, and eventually declining in the fall of 2012. Fortune:
It was in the hedge fund that the first signs of trouble appeared. An investor who spoke off the record because he is bound by a nondisclosure agreement, describes how the fund missed both of Apple’s big 2012 rallies — in April when it hit $644 and in September when it hit $705. Zaky lost nearly nearly 50% of the fund’s capital in one month (March) by buying bearish put spreads just before the stock rose 10%. The fund also managed to get crushed when the stock went down. In May, when the stock fell nearly 100 points, Zaky had bet heavily on bullish calls spreads.
Bt the fall of 2012, Zaky was desperate to recoup the fund’s losses. He bet what was left of its capital on more call spreads, gambling that the stock would rally at $630 and hit $700 by January.
When Apple fell to $505 in late November, he sent his investors what must have been one of the most painful letters of his life.
The losses amounted to at least $10.6 million, but quite possibly a lot more. In a follow up article, Fortune’s Phillip Elmer-DeWitt speculated that losses could be in the billions, if some of the large investors have not made themselves known.
Angry, disappointed and traumatised investors in the fund have set up a Google group, where ruined marriages, lives and suicide were discussed.
Somebody who bought Apple shares at $60 each in the 1990s ended up losing $400,000 and all his shares after converting most of them to high risk call options, following the advice of Zaky.
Zaky refused to be interview by Fortune, and left only this comment:
The bottom line is we didn’t expect Apple to crash 40% of its value inside of a few months and trade at a 10 P/E ratio given its cash flows. We were on the bull side of the Apple case and it didn’t work. I wish I could give you more, but then it would just look like a complicated set of excuses. And what’s the point.
Understandably, Zaky has been left reeling by what was an abrupt knockout. Bullish Cross is no longer taking subscriptions, and it will be interesting to see what his next move will be.
It is quite a remarkable story: from respected Seeking Alpha contributor, hedge fund manager and Apple stock analyst to rock bottom in the space of under six months. It really is a fall of Icarian proportions, but it was definitely made a lot worse by the huge amount of money that was thrown in by investors. Play with fire you will get burned, it’s a lesson we all must learn.
