The 5 Most Crowded Trades on Wall Street: Part 1 – Apple Inc. (NASDAQ:AAPL)

(Before It's News)

Dian L. Chu:  Herd Mentality - Here are 5 of the most crowded trades in financial markets, where a lot of group think has led to large fund flows on one side of the trade. This has been a very common phenomenon the last couple of years in financial markets, partly due to participating in the same investment conferences, limited trading opportunities, lack of imagination, investors seeking security with the crowd, Fed incentives, shared information and networking otherwise called industry collusion, trend trading, and going with ideas that have worked in recent history.

Risk/Reward Perspective

Now crowded trades can remain crowded trades for a long time, they can even become overcrowded trades long before they start to reverse themselves. However it is important to know that a lot of funds have already been committed to these trades from a one sided perspective. Thus the price to value relationship or value proposition from a risk reward perspective is just not that great, and in some of these five cases, is in fact pretty bad or skewed in the opposite direction.

Apple

Let’s start things off with Apple this stock has had an amazing run from the large pullback when Samsung pulled ahead of Apple with the better smartphone with a bigger screen. Since then Apple has finally reacted and upgraded their phone`s specs with the culmination being the large screen size in the last phone iteration. Samsung has come out with some small improvements for their last smartphone iterations, but currently Apple probably has the overall consensus best smartphone as viewed by the mass high end smartphone buyers. Samsung is coming out with the Edge Smartphone in April, and this phone`s specs are probably better than Apple`s latest product offering, but it remains to be seen if the specs are noteworthy enough to gain market share from Apple for the high end buyer given Apple`s Higher Brand Value among consumers.

So You Have Done The Big Screen…What Now?

I think that once Apple finally came to market with the big screen phone there are only small incremental improvements to smartphones from here on out, and smartphone margins are going to come down across the industry. I also think that Apple will no longer have the best smartphone in four months as the other companies bring out their latest offerings to market. I look for one more really good earning`s report from Apple, but that is probably as good as things are ever going to get for this company. The downside risks as all the Hedge Funds and Management Funds unwind this trade on profit taking and seeking better returns elsewhere in the markets is significant.

Smartphones are fully Commoditized

I know this company is sitting on a lot of cash, but cash can be burnt through rather fast on the downside of a major commoditization cycle in a company`s hardware offerings. I wouldn`t be surprised if Apple drops below a $50 stock over the next three years, and remember

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