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Jeffacme

macrumors member
Dec 27, 2006
70
0
Wrong

It's as I told a close friend yesterday, buying AAPL is not an investment strategy. There are two important words there: "investment" and "strategy".

Investment requires active research, and making decisions not based on speculative plays but a sound analysis of the value of the asset being acquired. Hearing about a company as ubiquitous as Apple and then jumping on board on the assumption that it'll keep going up (remember the housing market?) is not investing.

If all of Apple's enterprise were struck by a meteor tomorrow and wiped off the face of the planet, would the average Apple speculator be well insulated from that catastrophe in the rest of their portfolio. Would their "sit and presume infinite growth" tack work with the broader market?

If the answer to questions like these is "no" then whatever else you want to call it, it's not investing, and it's not a strategy.

Spend less time beating yourself up for "shoulda, woulda, coulda" on a company that could have just as easily gone the other way... and start beefing up your knowledge of investing, and insulate yourself against potential catastrophic loss. THAT, and not consistent huge wins, is what will growth your wealth tremendously in the long term.

Chasing unsustainable returns is a sure fire way to expose your principal to risk of loss... and that kind of loss compounds over time. I don't miss the AAPL boat because I have much more stable long term investments that are actually providing pretty stellar returns, very close to Apple's.... but without the volatility of the umpteen zillion speculators who are all sitting and hoping with their eyes closed and ears shut.

I'm not saying that Apple will do terribly, but Apple's book value is well below 600 dollars per share. So the difference is owing entirely to speculation on where they will go in the future. That works perfectly as long as Apple keeps producing double digit growth infinitely... but its the "infinitely" part that is a statistical impossibility. Growth rates have to shrink at that scale because a) Apple is gaining share of wallet much faster than the number of wallets or size of wallets is increasing, and b) Apple has to produce exponentially more marginal revenue each quarter just to maintain the same growth rate mathematically.

And then there's the Steve factor... any time a business's image and success are so inextricably tied to an iconic figure you cannot top that. No one will ever take the reins of Apple with a greater vested interest than Steve had. No visionary of Steve's caliber will prefer to work for Apple over starting his own company.

A shrewd investor is like a good hockey player... skate to where the puck is going next, not to where it is now.

Apple is now trading at the same multiple as the S&P 500 using current earnings estimates of 42$ a share. It is easy to make the case that those estimates are low and the real number may be $50-55 per share throw in the 100 billion in cash and the best executing company in the world is still cheap compared to the benchmark.

The reason AAPL is soaring has to do with sound investment theory and a slew of analyst upgrades. Morgan Stanley published a piece a few days ago making the Bull case for a share price of $960 in CY13, Morgan Stanley! With price targets being raised daily above $700 per share AAPL still has room to run But you are correct there are many stocks that are capable of outperforming AAPL from this point on. As a long term investor in AAPL who has enjoyed the three year run from $78.20 in January of 09 I am staying long for the time being.

----------

What happened to the Law of Large Numbers that Apple was talking about at the 300 billion market cap mark?

It has been replaced by the law of larger markets.
 

pdc123

macrumors newbie
Mar 17, 2009
28
0
So your answer is to cite sources like Seeking Alpha which publish articles from laypeople instead of business analysts who actually work inside tech corporations and produce the forecasts from the inside? All right then.

But for the record, Buffett doesn't normally make predictive statements about specific securities... because of his ability to influence the market. He also tends to stay away from tech but this year he made an exception: IBM. Now tell me why he chose IBM and not Apple.

And that's you right, deigning to spend some time on a MacRumors thread.

What's funny is I could respond to this thread a year from now, with a higher Apple stock price, and you'll still bluster about how you were right.
 

Avatar74

macrumors 68000
Feb 5, 2007
1,608
401
dementia?

No, IBM is underpriced. And if he made the same kind of deal he did with GS and BOA, for warrants and/or preferreds with a fixed dividend of 10%... then he's using another strategy I use: Dividends as insurance.

While I'm holding a large volume of a security, I don't care what the market price is... just that I acquired a dollar of assets for less than a dollar. During that time, even if the stock dips, I'm still collecting dividends. I win. If the stock appreciates, and I can make a profit disposing of it, I win. Either way, I win.

Buffett created three situations for himself where he's making hundreds of millions of dollars even if BOA, GS and IBM were not being rewarded by the market... because if their market performance sucks, but they're still producing meager but positive operating cash flows, they can't cough up the dough to close out the warrants and until then he's sitting around making a guaranteed $500 million on each of those bets doing absolutely nothing.

Now I don't have the buying power to get the higher preferred dividends that he does, but I still apply the same kind of thinking to my more questionable investments (which are still far to the right of the average person's idea of acceptable risk).
 
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d0vr

macrumors 6502a
Feb 24, 2011
603
1
At some point its growth will slow. There might even be a big dip if there is a scare and the amateur investors bail. But AAPL is positioned for continued growth over the next few years, and then either a long time of stability before decline, or continued growth because of some innovation from the soul of Jonny Ive & Co.

Let me rephrase, at the very least, now is not the time to invest in AAPL stock. That time passed 10/20 years ago (or a month ago if you have a very large sum of money - aka, you're not an amateur investor).
 

rhett7660

macrumors G5
Jan 9, 2008
14,219
4,294
Sunny, Southern California
Partially true. I agree AAPL is grossly overvalued, and that bubble will likely pop sometime in the next couple years. However, I disagree on your assessment of what an "investment strategy" should be. The most important thing an investor can do is diversify, not just across multiple companies, but across multiple markets as well, the idea being that markets increase in value over time. So if you invest in a dozen markets and hold onto that stock for 50 years, you're safer and likely to net a reasonable sum when you cash in. Dumping all your money into one company, as one poster claims he did, is too risky, no matter how well performing that company is/you expect it to be.

I am curious as to why you think it is grossly overvalued? What are you using to come to this conclusion?
 

rstansby

macrumors 6502
Jun 19, 2007
493
0
This is dangerously fast growth. Does anyone remember when their home gained 20% value in a short period of time. The Apple bubble has to burst soon.
 

noisycats

macrumors 6502a
Jun 1, 2010
772
864
The 'ham. Alabama.
He also tends to stay away from tech but this year he made an exception: IBM. Now tell me why he chose IBM and not Apple.

The companies are night and day different (so not in the same shopping cart). Also, the tech exposure is because of his two new fund managers.

Nevertheless, this decision says a lot about IBM, but really says nothing about Apple.
 

pgiguere1

macrumors 68020
May 28, 2009
2,167
1,200
Montreal, Canada
Just ask yourself how different Apple is today than last month? Is it really worth $100 more a share than it was at the beginning of February? How much has the business changed? We all knew the iPhone was going well. We all knew the iPad was getting updated.

Or since January? Is Apple 50% better today than it was in January? Because the stock's jumped from $400 to $600 since then. Is it justified?

Again, I'm not saying Apple's not going to succeed. I'm just saying I wouldn't feel very comfortable buying at this level.

I think it's more about fears that went away than anything else.

The iPhone 4S proved to be a huge success while some thought it could be a failure and feared for Apple's smartphone market share. Not only did the 4S turn out to sell more than any other iPhone, but no "killer" Android phone has been released since the Samsung Galaxy S2 (the others that came after weren't substantially better). At the pace that new, better Android-based hardware was being released at that time, it was a bit scary for investors to see Apple pull out a 4S.

Same for the iPad, we knew it would get an update, but we didn't know it would continue dominating. Some thought new hyped Android tablets like the HP Touchpad, Blackberry PlayBook and Kindle Fire would steal considerable part of Apple's marketshare. Now we see they're not real threats and the share price goes up. It will continue going up even more if upcoming threats like Windows 8 tablets turn out to be failures as well.

It's not just about Apple, but about the whole market and how Apple fits in it. While it's true that Apple are predictable with their product releases and their incremental updates are constant, what is interesting to investors is that they keep their lead and prove it's not just a temporary thing that happened by chance. The competition struggles to compete with Apple way more right now than expected when Apple's stock price was 300-400$. Back then, some analysts thought that Android tablets could surpass the iPad's marketshare as soon as the end of 2012. Now this prediction is laughable and newer analyst predictions state that Android tablets could take the lead only in 2015.
 

Avatar74

macrumors 68000
Feb 5, 2007
1,608
401
This is dangerously fast growth. Does anyone remember when their home gained 20% value in a short period of time. The Apple bubble has to burst soon.

I'm not even concerned with the "bubble".

They're doing $100 billion in rev. 30% growth requires $30 billion in MARGINAL growth.

At $130 billion, it'll require $39 billion.

At $169 billion, it'll require $50 billion.

And so on... but as their enterprise grows, their share of wallet grows and REMAINING share of wallet shrinks unless consumer discretionary incomes increase at a faster pace than Apple's growth... which is entirely impossible in the immediate future.

So, even if Apple keeps growing $30 billion a year, which is still very respectable, their growth rate mathematically will shrink (doing the math, year over year: from 30% to 23% to 18.7%... and so on) and the average person on the street will only see the shrinking growth rate and consequently speculators will start to lose the absolute fervor that has pushed Apple so far past their intrinsic valuation.

They can do things to buffer this a bit, but the limits on share of wallet still apply as long as Apple's growth outpaces the growth of the economy. One poster suggested Apple could hit $1800 per share some day. Really? Exceeding the GDP of the entire United States? How is that at all a pragmatic valuation?

Sure, speculators may be dumb enough to push it there... but that doesn't mean it's a train you should be getting on at this point. Plenty of other trains are just starting their run. Do some research, find them, and minimize your exposure to risk.
 

cvaldes

macrumors 68040
Dec 14, 2006
3,237
0
somewhere else
Just ask yourself how different Apple is today than last month? Is it really worth $100 more a share than it was at the beginning of February? How much has the business changed? We all knew the iPhone was going well. We all knew the iPad was getting updated.

Or since January? Is Apple 50% better today than it was in January? Because the stock's jumped from $400 to $600 since then. Is it justified?
Well, nothing's really changed. Fundamentally, it's still the same company doing what it does.

Funny, the day the iPhone 4S was announced, AAPL had an intraday low below $355.

FD: I'm long on AAPL and it is my best performing investment, but I'm content to keep my position at around 10% of my overall portfolio. Happily, a pile of it is sitting in a Roth IRA, no taxes.
 

Avatar74

macrumors 68000
Feb 5, 2007
1,608
401
The companies are night and day different (so not in the same shopping cart). Also, the tech exposure is because of his two new fund managers.

Nevertheless, this decision says a lot about IBM, but really says nothing about Apple.

It says he's not interested in Apple despite all the intense hoopla left and right on the markets. Apple is a computer hardware manufacturing company. So is IBM. Their market segmentation is very different, but generally speaking they're in the same broad industry that Buffett tends to stay away from... so do I (even though I work for one of the top software manufacturers).

In fifteen minutes, some company will come along that will quickly alter the course of tech, and then another and then another. But in 100 years, the internet won't have changed how we chew gum... I like to have time to evaluate and understand what I'm buying. That's investing. Whatever else you want to call it, sitting on Apple and not doing the research to identify other lucrative opportunities with a higher value than price is not investing.
 

profets

macrumors 603
Mar 18, 2009
5,111
6,138
I'm not even concerned with the "bubble".

They're doing $100 billion in rev. 30% growth requires $30 billion in MARGINAL growth.

At $130 billion, it'll require $39 billion.

At $169 billion, it'll require $50 billion.

And so on... but as their enterprise grows, their share of wallet grows and REMAINING share of wallet shrinks unless consumer discretionary incomes increase at a faster pace than Apple's growth... which is entirely impossible in the immediate future.

So, even if Apple keeps growing $30 billion a year, which is still very respectable, their growth rate mathematically will shrink (doing the math, year over year: from 30% to 23% to 18.7%... and so on) and the average person on the street will only see the shrinking growth rate and consequently speculators will start to lose the absolute fervor that has pushed Apple so far past their intrinsic valuation.

They can do things to buffer this a bit, but the limits on share of wallet still apply as long as Apple's growth outpaces the growth of the economy. One poster suggested Apple could hit $1800 per share some day. Really? Exceeding the GDP of the entire United States? How is that at all a pragmatic valuation?

Sure, speculators may be dumb enough to push it there... but that doesn't mean it's a train you should be getting on at this point. Plenty of other trains are just starting their run. Do some research, find them, and minimize your exposure to risk.

Most intelligent posts in this thread hands down.

I know we may all love apple and love seeing them do well. But we really should sit and understand the numbers and how the share growing at this rate, faster than the company grows will surely cause it to drop at one point.
 

Avatar74

macrumors 68000
Feb 5, 2007
1,608
401
Well, nothing's really changed. Fundamentally, it's still the same company doing what it does.

Funny, the day the iPhone 4S was announced, AAPL had an intraday low below $355.

FD: I'm long on AAPL and it is my best performing investment, but I'm content to keep my position at around 10% of my overall portfolio. Happily, a pile of it is sitting in a Roth IRA, no taxes.

Very sensible. I commend that. And I mean that. We live in an age of hype and lack of education about finance and investing. So it is very commendable that you've got your head screwed on straight when it comes to your retirement.
 

Jeffacme

macrumors member
Dec 27, 2006
70
0
I'm not even concerned with the "bubble".

They're doing $100 billion in rev. 30% growth requires $30 billion in MARGINAL growth.

At $130 billion, it'll require $39 billion.

At $169 billion, it'll require $50 billion.

And so on... but as their enterprise grows, their share of wallet grows and REMAINING share of wallet shrinks unless consumer discretionary incomes increase at a faster pace than Apple's growth... which is entirely impossible in the immediate future.

So, even if Apple keeps growing $30 billion a year, which is still very respectable, their growth rate mathematically will shrink (doing the math, year over year: from 30% to 23% to 18.7%... and so on) and the average person on the street will only see the shrinking growth rate and consequently speculators will start to lose the absolute fervor that has pushed Apple so far past their intrinsic valuation.

They can do things to buffer this a bit, but the limits on share of wallet still apply as long as Apple's growth outpaces the growth of the economy. One poster suggested Apple could hit $1800 per share some day. Really? Exceeding the GDP of the entire United States? How is that at all a pragmatic valuation?

Sure, speculators may be dumb enough to push it there... but that doesn't mean it's a train you should be getting on at this point. Plenty of other trains are just starting their run. Do some research, find them, and minimize your exposure to risk.

From here on AAPL's growth will have much more to do with expanding into untapped markets your analysis may make sense when there actually is a wallet.
 

Avatar74

macrumors 68000
Feb 5, 2007
1,608
401
Most intelligent posts in this thread hands down.

I know we may all love apple and love seeing them do well. But we really should sit and understand the numbers and how the share growing at this rate, faster than the company grows will surely cause it to drop at one point.

:eek: Thanks.... I find it really unproductive, as an analyst and investor, to allow emotion into the equation. That's when you get screwed, whether you're buying a car, a house, or a retirement... removing all my personal passion for Apple since 1979 (I've had seven computers, five iPhones, three laptops, two apple tv's... etc etc etc... and I still admire their products, and look forward to what they're going to do next), I just see it as a mathematical inevitability that doesn't surprise me. But, and this is what concerns me... when it does finally catch up it will shock speculators who up until that point have been holding hands and singing kumbaya, instead of applying the principles of Sun Tzu and Ben Graham out there in the broader market.

The Market is your enemy.


It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle. - Sun Tzu; The Art of War

An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative. - Benjamin Graham; The Intelligent Investor
 

Earendil

macrumors 68000
Oct 27, 2003
1,567
24
Washington
Surely this will have to crash at some point... no offense to Apple but this seems almost too high.

But it doesn't have to "crash". It can slowly and heathily go down as Apple over time isn't hitting so many home runs. It won't "crash" though, because Apple isn't likely to have its next 4 products flop. Eventually Apple will release a dud, and the market will drop a bit until they release another great product. But remember that almost all the same designers, engineers, managers, and movers that gave us the products of the last 5 years, will continue to work at apple for the next 5. Things won't die quickly even if they do. See Microsoft, it doesn't matter how many times they fail, they are still around.
 

Avatar74

macrumors 68000
Feb 5, 2007
1,608
401
From here on AAPL's growth will have much more to do with expanding into untapped markets your analysis may make sense when there actually is a wallet.

You understand that Share of Wallet is a metric that weighs the potential of untapped or yet to exist markets against available consumer capital to spend on them... right?

How many more yet to exist products can Apple have in the market at any given time, competing against other products AND against each other (cannibalism) for the customer's disposable income? Look at their past business and how instead of leaving certain products in the market indefinitely, they phase out some and bring in others... they're pacing their growth, even if the market isn't paying attention to this at this moment. They're going to slowly reduce that pace over time, but the market will be slower still to react to that adjustment... because, once again, people in large groups tend to act stupidly.

And that's bad for an investor, because what it signals is that the market will make a sudden and significant reaction to Apple's conservative strategy somewhere way down the road, instead of giving you and everyone else a fair lead time by adjusting its sights as Apple adjusts theirs. Overall revenue growth is up, but unit sales are declining in some segments.

It's simple math: If the total disposable income in the market is x, and 0.8x is already occupied purchasing Apple's products and a bunch of other things every family spends its money on, then how many more products at what price point given churn, retention rates, product interdependencies, cannibalism risk, etc. can Apple sell in any given quarter? Unless consumer incomes rise, and rise sharply, that wallet (their disposable income) is not of infinite size... no matter what size it is. It is not infinite, and every amount of new acquisition any business does (keep in mind I do precisely this sort of analysis for a gigantic software company) reduces the available share of wallet that hasn't already been gobbled up.

That includes access to revolving credit because there's a limit to that as well, dictated by FICO scores, available capital in the credit markets, tightening of lending standards following the financial and housing crises of 2008...

Apple's growing at a much faster pace than any of these... so by what mathematics do you say "when there actually is a wallet" as if there isn't one? Are you saying it's better to be the guy who doesn't pay attention and gets left holding the bag, than to be the guy paying attention?
 

xinu

macrumors regular
Mar 9, 2012
211
0
Finland
But it doesn't have to "crash". It can slowly and heathily go down as Apple over time isn't hitting so many home runs. It won't "crash" though, because Apple isn't likely to have its next 4 products flop. Eventually Apple will release a dud, and the market will drop a bit until they release another great product. But remember that almost all the same designers, engineers, managers, and movers that gave us the products of the last 5 years, will continue to work at apple for the next 5. Things won't die quickly even if they do. See Microsoft, it doesn't matter how many times they fail, they are still around.

But Apples Total Equity is quite small.

And if economy crashes, Apple loses 80% of its value immediately.

IBM wont. Like it didnt with when Lehman Brothers fcked up everything.
 

Avatar74

macrumors 68000
Feb 5, 2007
1,608
401
But it doesn't have to "crash". It can slowly and heathily go down as Apple over time isn't hitting so many home runs. It won't "crash" though, because Apple isn't likely to have its next 4 products flop. Eventually Apple will release a dud, and the market will drop a bit until they release another great product. But remember that almost all the same designers, engineers, managers, and movers that gave us the products of the last 5 years, will continue to work at apple for the next 5. Things won't die quickly even if they do. See Microsoft, it doesn't matter how many times they fail, they are still around.

It can slow down, but that clearly isn't how the average bandwagoner sees Apple in their myopic view. They'll react far after the fact... They're not even seeing the signs right now, such as the 3 million unit shortfall on iPhone 4S sales last year, or the depletion of $760 million in warranty reserves (almost the entire bucket) from the iPhone 4's antenna gate issues among other things. Not a huge amount, but the fact that I got down voted in another thread for pointing this out suggests to me that people generally don't read the fine print in the back of the annual reports).

The bell curve of investor awareness is such that the majority will not adjust slowly in this case because Apple has umpteen zillion speculators riding it like it's the only thing out there... because they don't do their homework. If they did, they wouldn't bat an eye over Apple.
 

Taz Mangus

macrumors 604
Mar 10, 2011
7,815
3,504
The sky's the limit with stock price. Just look at BRK.A‎ - Berkshire Hathaway Inc. (NYSE) currently trading at $121,413.00/share, up $336.00/share. Just saying.

Personally, I still think Apple stock is still a good buy. I thought that same thing when Apple stock was trading at $100, $200, $300, $400 and $500/share. I am in it for the long haul and I sure glad I am at this point. I think the stock will hit $700/share within 3 months.
 
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