Sorry tale of how an L.A. financial advisor pushing Apple stock led to massive losses

applestock.jpgHis name is Andy Zaky and his upbeat forecasts about Apple had been largely spot on - so much so that he gained a large following of admiring investors (and later started a high-end Apple hedge fund). After topping $700 a share, Zaky expected Apple to hit $750 in January and $1,000 by next fall. Not quite - on Monday the stock closed at $420.05. The months-long tumble has resulted in huge losses for investors who were convinced, thanks to people like Zaky, that Apple defied conventional investment patterns. In other words, what goes up will keep going up. When Apple fell to near $500, here's what Zaky told investors: "It is with extraordinary regret that I must inform you that during this very dramatic period, the fund has sustained very heavy and largely irreversible losses." He very likely didn't know what hit him. Fortune's Philip Elmer-DeWitt, who has chronicled the 33-year-old Zaky's success since 2008, follows up on the disastrous decline:

Andy Zaky was born in 1979 and raised in Southern California. He graduated from UCLA in 2003 and UCLA Law School in 2008. His bio on Seeking Alpha, where he's published more than 90 articles over the past five years, describes him as having 10 years of investment experience, although he has no formal training in financial management or technical analysis. He says he learned everything he knows about trading stocks on the Internet, where he developed a knack for anticipating when a stock was over- or undersold based on a variety of technical indicators, including the Chaikin Oscillator and the RSI (relative strength index).


As Apple's share price climbed and Zaky's fame spread, investors clamored to get in. In June 2012 he opened his newsletter up to a flood of new subscribers, charging the members of this group $200 a month. At its peak, Bullish Cross Pro had 700 subscribers and a lively bulletin board where Zaky would often field more than 500 comments and questions a day. Meanwhile, he was onto something even bigger. In late 2011 he'd launched Bullish Cross Capital L.P. -- basically an Apple-only hedge fund -- with a handful of subscribers. By the spring of 2012, the fund's investor rolls had grown six fold.


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. 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. "it is amazing how poorly positioned the fund was," this investor writes. "He based his trades too much on how Apple traded in the past and completely discounted any black swan scenarios. He didn't follow any of his own previous advice about how to properly position yourself -- not over-allocating on single trades and having proper upside and downside hedging."

In an email to Elmer-DeWitt, Zaky said, " 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."

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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