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Apple, Inc. bought back another $5 billion of $AAPL stock in Q3 as shares rose 20% - Page 2

post #41 of 55
Quote:
Originally Posted by anantksundaram View Post


If your investing philosophy is based on the greater fool theory -- to wit, "idiots who sold the shares" -- all I can say is good luck. (Just so you know, there is always a buyer and a seller for every trade, whether that trade happened at $395 or at $705).

Moreover, if you think that everyone who sells their shares back to Apple sells ALL their shares and cease to be 'ongoing holders,', you may even belong to the group that you deride.

You're obviously missing the point of those arguing (correctly) that the tax consequences for AAPL investors of a stock buyback and a dividend are different.  Let's look at the two alternate scenarios considering the impact on someone with 1000 shares who sells 200 of them.

 

In case 1 (the stock buy back scenario).  The investor sold 200 shares at price X and now holds 800 shares are a price higher than it would have been.  He pays taxes this year on the 200 shares he sold.  (Of course the sale had nothing to do with Apple's decision.)

 

In case 2 (the dividend scenario).  The investor sold 200 shares at price X and now holds 800 shares and a price lower than scenario 1.  But he also gets a cash dividend based on his 800 shares.  He pays taxes this year on the 200 shares AND on the special dividend.

 

The taxes he pays on the 200 shares he sold is exactly the same in both cases, so we can ignore that.  So the difference comes down to the fact that in scenario 1 the gain from Apple's buy back is 100% tax deferred whereas the gain in scenario 2 is taxed immediately.  So it's false to say that "because the tax rates for dividends and capital gains are equal that the tax implications are the same."  While the rates are the same, the timing of the taxation is quite relevant.  It's a basic truism in finance that paying X dollars in taxes some time in the future is preferred to paying X dollars today (except in a regime of negative real interest rates, but then things get really wonky).

post #42 of 55
Quote:
Originally Posted by anantksundaram View Post

If your investing philosophy is based on the greater fool theory -- to wit, "idiots who sold the shares" -- all I can say is good luck. (Just so you know, there is always a buyer and a seller for every trade, whether that trade happened at $395 or at $705).

Moreover, if you think that everyone who sells their shares back to Apple sells ALL their shares and cease to be 'ongoing holders,', you may even belong to the group that you deride.

You have a tenuous grasp, if any grasp at all, on logic and you clearly know little of what you speak. How does the greater fool theory even come into play in this conversation? It doesn't. That's a concept applicable to stocks like AMZN or CYNK. You're clearly beyond your depth.
I have enough money to last the rest of my life. Unless I buy something. - Jackie Mason
Never own anything that poops. - RadarTheKat
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I have enough money to last the rest of my life. Unless I buy something. - Jackie Mason
Never own anything that poops. - RadarTheKat
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post #43 of 55
Quote:
Originally Posted by malax View Post

You're obviously missing the point of those arguing (correctly) that the tax consequences for AAPL investors of a stock buyback and a dividend are different.  Let's look at the two alternate scenarios considering the impact on someone with 1000 shares who sells 200 of them.

In case 1 (the stock buy back scenario).  The investor sold 200 shares at price X and now holds 800 shares are a price higher than it would have been.  He pays taxes this year on the 200 shares he sold.  (Of course the sale had nothing to do with Apple's decision.)

In case 2 (the dividend scenario).  The investor sold 200 shares at price X and now holds 800 shares and a price lower than scenario 1.  But he also gets a cash dividend based on his 800 shares.  He pays taxes this year on the 200 shares AND on the special dividend.

The taxes he pays on the 200 shares he sold is exactly the same in both cases, so we can ignore that.  So the difference comes down to the fact that in scenario 1 the gain from Apple's buy back is 100% tax deferred whereas the gain in scenario 2 is taxed immediately.  So it's false to say that "because the tax rates for dividends and capital gains are equal that the tax implications are the same."  While the rates are the same, the timing of the taxation is quite relevant.  It's a basic truism in finance that paying X dollars in taxes some time in the future is preferred to paying X dollars today (except in a regime of negative real interest rates, but then things get really wonky).

Only two quibbles with your examples. In Example 1, you assume that the stock always goes up after a buyback. This is not true. Indeed, meta-studies show that happens about 55% of the time. They go up on average, but not always. Look at Apple's own buybacks shown in the story above. We know that there are periods during which the stock went down (although, the overall trajectory has been up, and that could be attributable to a whole host of factors including the buyback). In Example 2, you assume that the stock will go down, which is likely true (the ex-dividend effect). However, many studies show that the decline is closer the after-(personal) tax dividends paid per share.

Your point about the timing of tax payments is well taken.
post #44 of 55
Quote:
Originally Posted by anantksundaram View Post


Only two quibbles with your examples. In Example 1, you assume that the stock always goes up after a buyback. This is not true. Indeed, meta-studies show that happens about 55% of the time. They go up on average, but not always. Look at Apple's own buybacks shown in the story above. We know that there are periods during which the stock went down (although, the overall trajectory has been up, and that could be attributable to a whole host of factors including the buyback). In Example 2, you assume that the stock will go down, which is likely true (the ex-dividend effect). However, many studies show that the decline is closer the after-(personal) tax dividends paid per share.

Your point about the timing of tax payments is well taken.

 

My language/example was a little sloppy, admittedly.  Stock buybacks happen on top of a dynamic market.  The effect of a stock-buy back should have a positive effect ceteris paribus ("holding all other things constant," for those of you years away from Economics 101), but observed during a falling market the stock price could still be negative.  The logic is that if we observe that AAPL fell $20 during a 3-month period that included a massive buy-back, many would say that "it would have fallen a lot more if it hadn't been for the buyback" (and I would agree with that).  But my primary point was about the tax implications, not strictly about the direct affects of a buy back.

post #45 of 55
Stock Repurchase strategies also provide some added financial flexibility; with $39B available, Apple has a pretty sure shot of beating EPS estimates next quarter.

That's a ridiculous amount of money, they have nearly spent as much in buybacks this year as Google has recorded in total revenue over the same period.

It's amazing to operate with that kind of cash apparatus...
post #46 of 55
Quote:
Originally Posted by RadarTheKat View Post

We'll have a beer then, because I'll be there too with my 7000 shares in tow.
Holy cow, TMI, literally! I had 65 shares before the split. Sold 100 about four years ago at about $300 to pay for a kitchen remodel. Still sitting on about $30K after cost.
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post #47 of 55
Quote:
Originally Posted by Robin Huber View Post

Since I will never sell my shares, I may be the only person at future stockholder meetings.

No, the wife and I will be there too ... 1biggrin.gif
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post #48 of 55
Quote:
Originally Posted by Sacto Joe View Post
 

Why that's a bad idea: You can't time the market. Yes, you might get more "bang per buck", but there's nothing that says the market won't suddenly take a nosedive for any number of reasons.

 

Also, it creates a "hump" in the valuation that's bound to create volatility, from a hysteresis effect if nothing else. Good for options freaks, not good for long term holders like me. It was all right to do that when AAPL was beaten senseless by shorts and down around $400/share. It was even all right when the shorts started trying to pull AAPL down under $500/share. But what's best for longs is a nice, steady re-inflation of the valuation of AAPL.

 

In the meantime, we're getting decent dividends, which has helped take the sting out of the lousy valuation.

 

Yes, lousy valuation. Apple should be up around a P/E of 20, not down almost to 15. It's got too much on the ball to be valued at half of Google.


I'd like to know what is the exact reason why Apple's valuation is as low as it is.  I'm guessing there's no formula to figure that out but does it have something to do with the business they're in, the fact that only the iPhone is making so much money for them or is it something like investors simply don't trust Tim Cook's judgment of running the company properly?  I'd find it very hard to believe investors look at Apple products and say they're not good enough for consumers to buy.  Why is even Microsoft receiving a higher P/E than Apple when this is supposed to be the post-PC era.  Forget Google, that company's P/E is off the charts when compared to Apple.  I'm wondering if Apple will never find a way to fix the compressing P/E problem.  It seems like Apple has done everything possible to expand the P/E but it's possible that it's just growing slowly.  There are of course analysts who still give rather low ratings to the stock, so they must see some sort of problem.

 

I'm always hoping that if Apple gets into some potentially huge business such as mobile payments, Wall Street might decide to give Apple some decent valuation.  Maybe Apple has attracted the wrong type of investors over the years who don't necessarily like the company and only put in money when things are going good for Apple but flee at the slightest scare.  They're definitely not the Google-type investors who continue to pour money into the company no matter what.

post #49 of 55
Quote:
Originally Posted by anantksundaram View Post


To be simple and honest about it, your post makes no sense.

(Edited)

It makes perfect sense to me, a special dividend is a bad idea - great for shareholders but do nothing to help the Apple shares.

post #50 of 55
Quote:
Originally Posted by Constable Odo View Post


I'd like to know what is the exact reason why Apple's valuation is as low as it is.  I'm guessing there's no formula to figure that out but does it have something to do with the business they're in, the fact that only the iPhone is making so much money for them or is it something like investors simply don't trust Tim Cook's judgment of running the company properly?  I'd find it very hard to believe investors look at Apple products and say they're not good enough for consumers to buy.  Why is even Microsoft receiving a higher P/E than Apple when this is supposed to be the post-PC era.  Forget Google, that company's P/E is off the charts when compared to Apple.  I'm wondering if Apple will never find a way to fix the compressing P/E problem.  It seems like Apple has done everything possible to expand the P/E but it's possible that it's just growing slowly.  There are of course analysts who still give rather low ratings to the stock, so they must see some sort of problem.

I'm always hoping that if Apple gets into some potentially huge business such as mobile payments, Wall Street might decide to give Apple some decent valuation.  Maybe Apple has attracted the wrong type of investors over the years who don't necessarily like the company and only put in money when things are going good for Apple but flee at the slightest scare.  They're definitely not the Google-type investors who continue to pour money into the company no matter what.

Apple's low valuation relative to Google, Amazon and others has much to do with the following four factors:

Market cap. There seems to be a special place reserved in hell for the company that claims the world's largest market cap, even if it well deserves to hold that title. The skepticism applied to companies as they near the top of the market cap spectrum suggests a nonlinear scale with the skepticism value skyrocketing for the one company at the top.

Misconception about Apple's business. When Exxon/Mobile was at the top of the market cap heap, analysts could readily understand its business in terms of the total world market for oil, with only a few subtleties. But Apple they seem to be confused by. They're seduced by the myth of market share in the phone and tablet markets, assuming that Apple's relatively low share in those markets is more key than its profits. Meanwhile, they miss the lesson right before their eyes in the PC market. Apple has, for a long time, done quite well with only a small share, and now that the world has flirted with the post-PC era for a few years, things are balancing out. And that means that the world has come to realize that tablets and PCs, while overlapping in some use cases, will always have their own strengths relative to one another. And so the PC universe will shrink only so much based upon the rise of tablets. Meanwhile, the world has had a taste, through iPhones and iPads, of technology that is more consumer friendly and 'just works.' This is bringing more and more each month/year into the Apple universe and those individuals, when it comes time to replace their aging Windows PCs, are for the first time considering a Mac. This illustrates that Apple can and will grow their share of the PC market now that the total number of PCs in use has basically plateaued. The same will occur in the tablet and smartphone markets once those markets stop growing, but analysts don't see this. They see only that smartphone and tablet adoption (growth of the entire smartphone and tablet markets) has been outpacing Apple's percentage unit growth and so Apple must be losing market share. What they fail to recognize is that market share during the build out phase is not the key measure of success for Apple, which plays only at the top of the market.

Bias shared by many tech analysts, who hail from tech industry backgrounds. Many of these folks continue to support the Tower of Babel approach to job security. Anything that is readily understandable and manageable by the masses degrades the power of knowledge held so jealously by the tech elite, the gurus of IT. Apple products, operating systems and ecosystem, to a far greater extent than any competitor's, reduces end user's dependence on the nerds that seek to maintain control over what they perceive as their domain of special knowledge, and therefore the source of their own value.

Apple's secrecy combined with analyst ego. An analyst, tech reporter or financial reporter is given little by the company to prognosticate and write about, and so they are left to imagine Apple's future, each on their own. Trouble is, they see this task as a challenge to outwit or outthink Tim Cook and most people, when left with such a challenge, will imagine themselves to have the power to do so, if not in all areas (none would deign to give Cook supply chain management advice) but in that one area where the analyst or reporter feels he has more expertise than Mr. Cook. Trouble is, these folks aren't up against only Mr. Cook, or only Mr. Cue or Mr. Ive. They're up against the aggregate intellect of the entirety of Apple's workforce. If they thought of the challenge in this manner then they would never dare step up to their keyboards and presume to write anything about Apple, but alas, they do not. The ego wins and bullshit gets written and posted daily in their endless chase for reader's attention and advertiser dollars.
Edited by RadarTheKat - 7/27/14 at 4:47am
I have enough money to last the rest of my life. Unless I buy something. - Jackie Mason
Never own anything that poops. - RadarTheKat
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I have enough money to last the rest of my life. Unless I buy something. - Jackie Mason
Never own anything that poops. - RadarTheKat
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post #51 of 55
Quote:
Originally Posted by Constable Odo View Post


I'd like to know what is the exact reason why Apple's valuation is as low as it is.  I'm guessing there's no formula to figure that out but does it have something to do with the business they're in, the fact that only the iPhone is making so much money for them or is it something like investors simply don't trust Tim Cook's judgment of running the company properly?  I'd find it very hard to believe investors look at Apple products and say they're not good enough for consumers to buy.  Why is even Microsoft receiving a higher P/E than Apple when this is supposed to be the post-PC era.  Forget Google, that company's P/E is off the charts when compared to Apple.  I'm wondering if Apple will never find a way to fix the compressing P/E problem.  It seems like Apple has done everything possible to expand the P/E but it's possible that it's just growing slowly.  There are of course analysts who still give rather low ratings to the stock, so they must see some sort of problem.

I'm always hoping that if Apple gets into some potentially huge business such as mobile payments, Wall Street might decide to give Apple some decent valuation.  Maybe Apple has attracted the wrong type of investors over the years who don't necessarily like the company and only put in money when things are going good for Apple but flee at the slightest scare.  They're definitely not the Google-type investors who continue to pour money into the company no matter what.

Its about earnings growth. Once they show 20% earnings growth the PE will explode to 20 (note i said earnings growth not EPS growth)

Most of the market is grossly over valued, so we will see PE's go down. I predict that in the next 12 months Google will go down 20-30% and Amazon also. The last 4 years was a massive Bull market that emphasized growth and risk taking because of all the money the fed was printing. When the market turns back to profitability and value, Apples shares will be more fairly valued. These things are cyclical. Wall Street always rotates in and out of value to growth. Then back again. Just hold your shares long term and you will do just fine.
post #52 of 55
Quote:
Originally Posted by Sacto Joe View Post
 

Why that's a bad idea: You can't time the market. Yes, you might get more "bang per buck", but there's nothing that says the market won't suddenly take a nosedive for any number of reasons.

 

Also, it creates a "hump" in the valuation that's bound to create volatility, from a hysteresis effect if nothing else. Good for options freaks, not good for long term holders like me. It was all right to do that when AAPL was beaten senseless by shorts and down around $400/share. It was even all right when the shorts started trying to pull AAPL down under $500/share. But what's best for longs is a nice, steady re-inflation of the valuation of AAPL.

 

In the meantime, we're getting decent dividends, which has helped take the sting out of the lousy valuation.

 

Yes, lousy valuation. Apple should be up around a P/E of 20, not down almost to 15. It's got too much on the ball to be valued at half of Google.

 

You can't "time the market" but you can avoid being a robotic idiot and buying near a top.

 

The reason buyouts are generally so epic-ly stupid is that company's buy near the 52-week high (or multi-year high) and have achieved nothing but proving that their stock wasn't in fact undervalued.

 

Apple can easily set a backstop buy order, especially since it will not reach its buyback goal at the current rate of $5 billion per quarter. And accelerating a buyout at the end is especially moronic.

post #53 of 55
Quote:
Originally Posted by markrogo View Post

You can't "time the market" but you can avoid being a robotic idiot and buying near a top.

The reason buyouts are generally so epic-ly stupid is that company's buy near the 52-week high (or multi-year high) and have achieved nothing but proving that their stock wasn't in fact undervalued.

Apple can easily set a backstop buy order, especially since it will not reach its buyback goal at the current rate of $5 billion per quarter. And accelerating a buyout at the end is especially moronic.

Posts that contain a series of epithets are rarely what I'd call edifying, whether written about companies or [sic] company's attributes.
Edited by digitalclips - 7/28/14 at 10:33am
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post #54 of 55
Quote:
Originally Posted by RadarTheKat View Post

Apple's low valuation relative to Google, Amazon and others has much to do with the following four factors ....

See above for RadarTheKat's full post.

What an excellent post.

I have taken the liberty to quote you to several friends who continually quiz me as to 'what on earth is going on where Apple is concerned' and I have never been able to come close to such a well constructed explanation.
Been using Apple since Apple ][ - Long on AAPL so biased
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post #55 of 55
Quote:
Originally Posted by RadarTheKat View Post


Apple's low valuation relative to Google, Amazon and others has much to do with the following four factors...

 

An excellent description to which I would like to add #5:

 

Holdings policy by large investment houses. This is an extension of point #1 regarding companies with giant capitalisations, whether deserved (e.g. Apple now) or not (e.g. Cisco/Microsoft in 1999). Most of the big investment houses have a limit on the percentage of their total asset base that can be invested in one stock. Given the meteoric rise of AAPL between 2007-2012, many of these companies will have found that their relatively small AAPL holdings outgrew the market to the point that they were hitting the policy limit of the amount of stock they could hold - typically 3-5% of total assets - even if the fund managers actually wanted to hold more. Tim Cook's decision to start paying a dividend increased the addressable market for AAPL as now funds who would only hold dividend-bearing stocks could buy in, and the price nudged up accordingly, causing various of the original institutional investors to dump some AAPL in order to keep within their single asset limits.  The only people left who can purchase AAPL stock are hedge funds (but Apple as a company performs too consistently to create the volatility necessary for them to invest), private investors (the 7-1 split is to encourage private investors by making it easy to add stock in smaller increments: not everyone wants to add $600+ to a holding in one go), and Apple itself.

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