Apple Loses $10 Billion in Market Cap in Minutes – Why The Apple Flash Crash Doesn’t Matter

by Ryan Guina

The sky is falling! Or so claims Fortune Magazine in this article: Apple flash crash: $10 billion gone. I’ll give you a quick synopsis of the article, and then tell you why it doesn’t matter.

Why You Should Ignore the Apple Flash Crash

The headline screams that Apple lost $10 billion in market cap in a matter of minutes. It makes for a great headline. Really – it got my attention, and probably just about anyone scanning the headlines. It’s even more impressive when you look at the photo Fortune ran alongside the text (I didn’t use their photo as it appeared to be copyrighted).

This daily stock chart is from Google Finance (AAPL) and it is not as dramatic:

Apple Flash Crash 2011

This quote from the article explains almost everything you need to know (emphasis mine):

The stock, which had been sailing along near its all-time high of $360 a share, started to drop at about 1 p.m. Then, at 1:39, it collapsed, falling from $355 to $349 in the space of four minutes.

In all, $10 billion got shaved off Apple’s market capitalization before the stock began to recover.

The rest of the article was speculation about why there was a sell off, including a possible rumor that Steve Jobs was in the hospital again. The article on to confirm that Steve Jobs was recently seen at the Apple Campus and no official cause for the “mass sell-off” was listed.

What the article does and doesn’t say about AAPL price

One of the keys to look at is that the stock price was selling at or near an all-time high. Almost any time you reach all-time highs you will get some push back. The article also doesn’t put things into perspective – dropping a few percentage points for most stocks isn’t a big deal. And in the grand scheme of things, it wasn’t a huge change in value. Apple stock lost $10 billion of value, sure. But that only represents approximately 3% of it’s market cap. But somehow “Apple loses 3% of value in minutes” doesn’t make for a sexy headline.

AAPL is still growing at a tremendous pace. Even with the Flash Crash, AAPL finished the day down 3.62%. But the article also doesn’t mention that including yesterday’s loss, AAPL finished up 5.49% over the previous 5 market days.

AAPL Feb 4, 2011 - Feb 10, 2011

Which brings up an important point: No one is alarmed when prices are rising. Look at how the markets reacted to the Dot Com Bubble and the recent Real Estate bubble. Everyone was happy while prices were rising. It was only when prices started crashing that people became alarmed. Am I equating AAPL stock to the Dot Com or Real Estate bubbles? Absolutely not – just pointing out that people are happy when things are going well, but they become alarmed when prices drop.

Let’s go back further than a week…

Let’s have some more fun with AAPL stock and look back over more than just the previous week. The following chart represents AAPL year to date, or approximately 40 days:

AAPL Jan 1, 2011 - Feb 10, 2011

Pay special attention to the closing price of $348.48 on January 14, 2011, which to that point was an all-time high. The next opening price was $329.52 on January 18th, the same day that Q4 earnings were released. The change in stock price represents a substantial change in price and market cap, but everyone was too busy looking at earnings to be concerned with that.

Now for a little more fun with AAPL stock. Let’s look at the previous 12 months:

AAPL Feb 11, 2010 - Feb 10, 2011

It’s not easy to see any huge daily gains or losses on a chart spanning 12 months., but there was actually another Flash Crash on May 6, 2010 which was worse than yesterday’s Flash Crash. From another Forbes article (source):

In the space of 20 minutes, between 2:35 and 2:55 p.m. EDT, it plummeted from nearly $248 a share to $199.25, before bouncing back at high volume to where it started.

Fun stuff.

What can we learn from AAPL Flash Crash?

The goal of this exercise isn’t to do a full blown stock analysis on AAPL. The point is that stock price fluctuations happen. Sometimes the reason is well known or easily understood (usually in hindsight). Sometimes there isn’t a reason to be found. But that doesn’t mean the sky is falling. It’s interesting if you’re an investor in AAPL, and maybe interesting if you like (or hate) Apple products. But it doesn’t change the fundamental valuation of AAPL stock.

The key take away is that headlines can be misleading without putting things in perspective. Yes, Apple lost $10 billion in market cap in a few minutes. But a drop of 3% market cap from an all-time high valuation is hardly something to get excited about.

Published or updated February 11, 2011.
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{ 3 comments… read them below or add one }

1 krantcents

I agree! Stock fluctuations of 2-3% appears to be common lately. I don’t react until I see minimum 3-4 days of decreases in a row. I am a long term investor not a market timer or day trader.


2 Donny Gamble

I don’t think it matters because Apple can get that money back in a blink of an eye


3 Mike

I always put more weight on technical indicators than the fundamentals or news stories. I believe the charts have a story to tell and they are the greatest indicators of economics and human behavior. Since economics and human behavior remain for the most part constant, I’ll always have confidence in the technicals. For that reason I always found it kind of amusing that people were often looking to yesterdays news to explain something I predicted three days in advance. That’s not to say that news isn’t important, but rather that the charts tell the story before it hits the newstands.


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