Last year, Jeffrey Gundlach, the CEO of Los Angeles-based DoubleLine Capital, lay out what some called the most contrarian Apple trade imaginable. In spring of 2012, Apple was riding high, climbing to almost $640 per share in early April. It gave some of that back over the summer, but by September, it made all-time highs above $700 and Apple observers started seriously talking about it as the first $1,000 per share/$1 trillion company.
Back in the spring, Gundlach predicted, in effect, that Apple's run was over. He put himself in the mind of a risk-craving hedge fund trader — his reputation is as a solid manager of bond investments, although his exit from his previous employer, TCW, was controversial — and recommended betting that Apple's share price would collapse. He paired that bet, his short position, with a call to go long on natural gas, so cheap at the time that it was practically free: around $2 per million BTUs.
Apple falls. Natural gas rises. It seemed almost black swan unlikely.
Gundlach's theory was that an Apple rally would parallel a rise in the price of natural gas — iPhone and iPad lovers would also bolster the energy economy, as their happiness would offer a broader indication of merriness about the future. So anyone who was short Apple would have a hedge against the stock climbing, because they'd be making money on natural gas while waiting for the Apple collapse Gundlach predicted.
His call is looking incredibly savvy now. Natural gas moved steadily northward in price over 2012, returning over 50 percent. Apple plunged from its autumnal highs; now it's within sullen striking distance of Gundlach's stated target price, $425. So if you'd taken Gundlach's advice last year, you'd be up A LOT by now. And when he made his call, he recommended borrowing money to amp up the returns — "adding leverage" — of ten times. So you'd be up more than a lot. You'd be up A LOT A LOT A LOT.
The funny thing about all this is that Gundlach actually made fun of the young turks of the hedge fund world when he made his call. Here's what he said, as recounted by Josh Brown at his Reformed Broker blog: "If I were one of these crazy hedge fund guys, with the slick haircuts and fancy shoes and racing stripe shirts, the trade I'd put on is 10-times-leveraged natural gas long versus 10-times short Apple."
It's certainly possible that some crazy hedge fund guys who paid attention saw through the ribbing and did just that, listening to an L.A. bond king who has a flair for figuring out eye-popping strategies even as, at DoubleLine, he pursues a more sober gameplan designed to max out investors' returns over the long haul. At a level, he seems to think of deeply contrarian but potentially lucrative trades as a sort of intellectual challenge. On Apple, his brain was up to the task.