I understand your argument for that, but at some point don't you get PE compression as growth is considered unsustainable by large number theory? XOM's balance sheet looks more compelling than AAPL in many ways, but of course there isn't the earnings growth without oil price growth.
I've heard that argument, but it seems to me it's not so much the rule of large numbers as the difficulty associated with continuing to crank out new hit products to sustain a growth rate. If it was simply a matter of the rate of the growth slowing because of increased profits, then I think we'd already have seen some indication of that effect kicking in. Years ago, probably. If the growth rate does decline, I think it would be a direct result of Apple's "next big thing" not being big enough.
There valued as the second highest valued company in the world. But there profits rant the highest in the world not even close. So how much do you think they should be valued at?
My thoughts on AAPL currently go like this. They don't pay dividends so until you sell you haven't made anything. So you have to question how much higher can the price go? How much more than every other company in the world can they be worth? And if you think the price can go to $350 that means your betting that at some point someone else is going to think it will go to $400 to make them actually pay that price.
It all comes back to the dividends. For an investment to be worth something you need a return. Once the stock reaches a point where it's unlikely to rise it's effectively giving a 0% return on investment. So now I think if you've got stock sell it, or some of it. Look at the price of google and it's history. If you're going for an increase in value they have a lot of room to move upwards very easily in comparison to apple.
Dividends are nice, but they don't fundamentally change a stock's value. Smart management involves reinvesting your dividends to maximize return. That is no different than relying on the stock price to increase.
As the good doctor said, stocks are valued based on forward cash flow/earnings. If today you think AAPL will be at $400 in 12 months, you are effectively saying you expect them to have a sustainable growth of 40% in that time frame, with minimal risk that profits will decline after that. With that hypothesis, there are different ways to invest $5,000 that will lead to different returns.
If you want to realize gains short-term, you can always trade around a position, relying on normal ups and downs of the market
The 'too big to grow much more' concept is really not well thought out. As anti-apple types have loved to point out for years, Apple only has a small penetration into most markets outside of iPods/ music. The fact they are far more profitable in those other sectors than those with the lions share is only more reason to see very healthy growth potential in those very areas. AAPL is ridiculously under valued.
I appreciate this always brings cries of derision from the math geniuses pointing out there is no numerical gain, but I'd like to see a stock split because it encourages more people to buy as they 'seem' as more affordable.
There valued as the second highest valued company in the world. But there profits rant the highest in the world not even close. So how much do you think they should be valued at?
My thoughts on AAPL currently go like this. They don't pay dividends so until you sell you haven't made anything. So you have to question how much higher can the price go? How much more than every other company in the world can they be worth? And if you think the price can go to $350 that means your betting that at some point someone else is going to think it will go to $400 to make them actually pay that price.
It all comes back to the dividends. For an investment to be worth something you need a return. Once the stock reaches a point where it's unlikely to rise it's effectively giving a 0% return on investment. So now I think if you've got stock sell it, or some of it. Look at the price of google and it's history. If you're going for an increase in value they have a lot of room to move upwards very easily in comparison to apple.
You don't have to have dividends to generate an income from long stock positions that you are holding. You can sell calls to generate income on stocks that you own for instance. This is known as a covered call.
We all make mistakes. But, IMHO, analyzing fundamentals at least allows you to learn from mistakes.
I don't discuss my job, nor my returns. No offense intended.
No offense taken. I do however take exception to your statement that apparently only analyzing fundamentals can let you learn from your mistakes.
That's just silly. I have had positive returns through the worst bear market we have seen in a long while. Do you honestly think that would have been possible if I hadn't learnt from mistakes, which admittedly took me a while?
When I worked as an engineer (I retired in my late '40's) I encountered a lot of guys with advanced degrees who had great theoretical knowledge who were pretty lame when it came to solving practical problems, especially at crunch time.
There are lots of guys who can talk the talk. Walking the walk is another matter.
Dividends are nice, but they don't fundamentally change a stock's value. Smart management involves reinvesting your dividends to maximize return. That is no different than relying on the stock price to increase.
As the good doctor said, stocks are valued based on forward cash flow/earnings. If today you think AAPL will be at $400 in 12 months, you are effectively saying you expect them to have a sustainable growth of 40% in that time frame, with minimal risk that profits will decline after that. With that hypothesis, there are different ways to invest $5,000 that will lead to different returns.
If you want to realize gains short-term, you can always trade around a position, relying on normal ups and downs of the market
Maybe my view is a little simplistic (I'm not claiming to be any kind of expert because I'm not) but essentially you invest money to make a return. If the company you invest in pays dividends then each you you've made some money which of course you could re-invest to make even more.
If it doesn't then you are basically betting that the value of the stocks are going to increase. But as in your example if in 12 months time the value is at $400 the only way it could be worth that is if someone else thinks the value is going to be worth more than that in 12 months time and therefore wants to buy it.
Take Microsoft for example its price is basically flat. If it didn't pay a dividend then you would be making nothing, apart form being a relitively safe place to keep your money there would be no point in investing. And if you had shares that wern't going up, and you wern't recieving any other form of return it would be sensible to sell and invest in something else. The more people that do that the more the share price will start to drop.
Now my biggest issue with Apples price is what they actually sell. Nobody doubts that there current product line up is amazing. But a big part of it is the iPhone, not one company has managed to always have "must have phone" for over a decade. Apples 3 years in and I would say is going to remain being at the top for a few more versions yet. But unless they can come up with a phone that is completely different to the iPhone and is also the next big thing, what is it that will keep them at the current level in 7 years time let alone still be seen as a company who's definetly going to keep growing to warrent investing in something that only makes are return based on it's ability to grow.
Still, I stand by what I said. Investment is a numbers game, and one should never put too many of your eggs in one basket. ... I had no way of knowing that the stock would *not* go to 0.
About the time of its "free fall" period, AAPL was trading for practically its cash value. The only significant risk at that time was that the iMac would completely flop leaving Apple with no revenue to support itself. The curious part was that stock analysts were all bearish at the time. As I recall, the very same analysts were bulls prior to its free fall. I have no use for analysts.
I know you're exaggerating, but the likelihood of AAPL "going to zero" was nil.
Warren Buffet became a multibillionaire by making precisely these kinds of acquisitions. He is not a gambler, neither am I. Still, when he bought KO he held, even as it fell 50%. If the fundamental reasons for buying a company at $25 were sound, they're even more sound should it fall to $11. To sell because the market is running away from a stock makes no sense. It's like following a stampeding herd - eventually you'll run off a cliff.
Unfortunately (for him) Buffet does not buy technology companies, since he claims he does not understand them. I can't blame him for that, since it is especially challenging to identify a tech company that can "pull a rabbit out of a hat" consistently as Dr Millmoss said.
But, as Warren Buffet said, when it's raining money, get a bucket.
Quote:
It's easy to say I should have done this or that with the benefit of hindsight.
Having followed Apple since about 1980 or so gave me the benefit of twenty years of hindsight. The only really young, successful investors are just lucky.
Yes. For years, I was able to strongly correlate AAPL to its earnings reports:
1. steady run-up prior to the report
2. report of record, blowout earnings
3. sell-off after the report
However, this hasn't held true for the past few quarters. It's uncharted territory for me.
I use the consensus plus 10% rule of thumb. If Apple doesn't beat the street by that much, the stock will fall. It seems to hold true, within pretty narrow margins plus or minus. The secret to AAPL's recent success after earnings reports is beating the street by 15% or more.
Now my biggest issue with Apples price is what they actually sell. Nobody doubts that there current product line up is amazing. But a big part of it is the iPhone, not one company has managed to always have "must have phone" for over a decade. Apples 3 years in and I would say is going to remain being at the top for a few more versions yet. But unless they can come up with a phone that is completely different to the iPhone and is also the next big thing, what is it that will keep them at the current level in 7 years time let alone still be seen as a company who's definetly going to keep growing to warrent investing in something that only makes are return based on it's ability to grow.
Sure, Apple will have to keep coming up with new versions of the iPhone, just as they have to keep coming up with new version of the Mac. That's about remaining competitive in the markets they are already in. But the ability to grow within current markets is inherently limited. Tilling existing fields is not enough to maintain the kind of explosive growth in earnings we've seen from Apple over the last few years. This growth has been the function of Apple diving into entirely new markets and succeeding. Any longterm holder of AAPL has to ask what Apple's next big thing is going to be. Right now they are riding the iPhone and the iPad, but those growth curves will very likely begin to flatten over the next couple of years. Something else yet unknown will have to drive earnings growth or that curve will begin to flatten too.
Another thought: This illustrates the problem with Microsoft. They can continue to ride the substantial profits from their existing core markets, but this provides them with few opportunities for growth, and they have yet to find another new market they can enter to drive earnings growth. Not that they haven't tried -- and failed. Their flat stock price is a direct result of this failure. Apple has been hitting the ball over the wall at every at-bat. But for how long?
About the time of its "free fall" period, AAPL was trading for practically its cash value. The only significant risk at that time was that the iMac would completely flop leaving Apple with no revenue to support itself. The curious part was that stock analysts were all bearish at the time. As I recall, the very same analysts were bulls prior to its free fall. I have no use for analysts.
I know you're exaggerating, but the likelihood of AAPL "going to zero" was nil.
Warren Buffet became a multibillionaire by making precisely these kinds of acquisitions. He is not a gambler, neither am I. Still, when he bought KO he held, even as it fell 50%. If the fundamental reasons for buying a company at $25 were sound, they're even more sound should it fall to $11. To sell because the market is running away from a stock makes no sense. It's like following a stampeding herd - eventually you'll run off a cliff.
Unfortunately (for him) Buffet does not buy technology companies, since he claims he does not understand them. I can't blame him for that, since it is especially challenging to identify a tech company that can "pull a rabbit out of a hat" consistently as Dr Millmoss said.
But, as Warren Buffet said, when it's raining money, get a bucket.
Having followed Apple since about 1980 or so gave me the benefit of twenty years of hindsight. The only really young, successful investors are just lucky.
We clearly have different criteria. In the case of my trade, AAPL still had a ways to drop, and I would not have broken even for about 5 years. That is way too long a horizon for me.
That it would come from being an almost irrelevant niche player to one of the most influential and profitable corporations in the world in less than a decade is totally amazing. I think most observers, including the most ardent fanbois would not have predicted this turnaround.
Take another great technology company - Cisco (CSCO). CSCO had it's peak in 2000 at around 80 or so. I feel sorry for the hapless investor who increased his investment as the stock plunged for months. Now 10 years later, the stock is still at 22 and change.
Mr. Buffett is an extraordinary investor and human being, and certainly his methods have brought his investors great returns. There certainly is a place for that type of value investing.
It's just not for me. I do not like to commit capital for long periods on stocks that are in a sideways trend. My pockets are not that deep. I like to see momentum (up or down) going which almost guarantees that I will miss buying the bottoms, and with my rules will probably miss selling the tops. Oh well. If I can catch much of the move long or short, I am perfectly fine with this.
I am a short term trader, but the same hold true for long term investors - Have a plan, think it through and act on it. Do not be afraid to make course corrects as conditions change. Do not be haphazard or you will certainly come to grief sooner or later. Protect your capital. And as a friend of mine says, the only thing worse than being wrong is staying wrong.
We clearly have different criteria. In the case of my trade, AAPL still had a ways to drop, and I would not have broken even for about 5 years. That is way too long a horizon for me.
That it would come from being an almost irrelevant niche player to one of the most influential and profitable corporations in the world in less than a decade is totally amazing. I think most observers, including the most ardent fanbois would not have predicted this turnaround.
Take another great technology company - Cisco (CSCO). CSCO had it's peak in 2000 at around 80 or so. I feel sorry for the hapless investor who increased his investment as the stock plunged for months. Now 10 years later, the stock is still at 22 and change.
Mr. Buffett is an extraordinary investor and human being, and certainly his methods have brought his investors great returns. There certainly is a place for that type of value investing.
It's just not for me. I do not like to commit capital for long periods on stocks that are in a sideways trend. My pockets are not that deep. I like to see momentum (up or down) going which almost guarantees that I will miss buying the bottoms, and with my rules will probably miss selling the tops. Oh well. If I can catch much of the move long or short, I am perfectly fine with this.
I am a short term trader, but the same hold true for long term investors - Have a plan, think it through and act on it. Do not be afraid to make course corrects as conditions change. Do not be haphazard or you will certainly come to grief sooner or later. Protect your capital. And as a friend of mine says, the only thing worse than being wrong is staying wrong.
If you discount for the tech bubble, the chart for CSCO is the classic growth to value transition. There's a place in a diversified portfolio for value stocks. I also own PEP, which isn't exciting, but it's still a great set-and-forget investment.
The rule for long term investors is very different than for traders. Traders are gamblers, they don't need a plan except to try to guess right. Even the pros can't do that with any consistency. Very few of them even beat market average returns on a more than sporadic basis.
The plan most people ought to have is to not own individual stocks. Their best strategy is to buy a mix of index funds and keep them balanced with their age and risk tolerance. Your admission that you miss bottoms and tops suggests that you'd probably be better off that way too.
If you discount for the tech bubble, the chart for CSCO is the classic growth to value transition. There's a place in a diversified portfolio for value stocks. I also own PEP, which isn't exciting, but it's still a great set-and-forget investment.
The rule for long term investors is very different than for traders. Traders are gamblers, they don't need a plan except to try to guess right. Even the pros can't do that with any consistency. Very few of them even beat market average returns on a more than sporadic basis.
The plan most people ought to have is to not own individual stocks. Their best strategy is to buy a mix of index funds and keep them balanced with their age and risk tolerance. Your admission that you miss bottoms and tops suggests that you'd probably be better off that way too.
As you suggest, guessing right is a crapshoot. Statistically I am wrong slightly more often than I am right. Now, if I lost as much on losing trades as I gained on winners, that would be a recipe for disaster. The key is money/risk management. I try to bail fairly quickly when the trade goes against me, and hold on as long as I can when it is in my favor. That is counter to what most try to do. It is a natural tendency to want to hold on when things are not in your favor, and bail when you have made a profit. These are tendencies the trader has to fight against. There are days when I will make, say, 4 losers, and 1 profitable trade and yet end the day with a profit.
Intraday, I buy bounces off support and sell when it gets to resistance or vice versa for a short. If I can get, say, 8 or 9 points on a 12 point move on the S&P futures, I am quite happy. Missing the tops and bottoms is what happens when you wait for confirmation for the candle to close on the timeframe that one is working on, but it does give you better odds on making a profitable trade.
This is definitely not for everyone, and it has taken me a while to get comfortable doing it. This is my day job.
That is not to say that I am strictly short term in all my trading activities. I do have long term retirement accounts which are managed much more conservatively, and with more of an emphasis on dividend paying stocks held long term.
As to whether or not I would be better off with a mix of index funds, during the recent financial crisis where many saw huge losses in their investments, I still was able to maintain double digit (albeit low double digit) realized gains overall.
As several sharp investment analysts have shown, it doesn't take much of a miss in timing to have been better off buying and holding. The other case they make is that even the best in the business have a hard time guessing tops and bottoms, and they rarely beat market averages. The case for not "playing the market" even with the best professional guidance is a powerful one, backed up with statistical analysis.
Having been a long time Apple user, I'm simply amazed how large Apple has become, especially after being beat up in the early 90's. I think Steve Jobs needs to be recognized as one of the greatest businessmen of all time.
Almost $20 billion in one quarter! How far off is Apple from making $100 billion annually?
I think Jobs has made it his mission to bury Microsoft ever since Gates left. He has set Apple on an excellent trajectory thus far.
Sure, Apple will have to keep coming up with new versions of the iPhone, just as they have to keep coming up with new version of the Mac. That's about remaining competitive in the markets they are already in. But the ability to grow within current markets is inherently limited. Tilling existing fields is not enough to maintain the kind of explosive growth in earnings we've seen from Apple over the last few years. This growth has been the function of Apple diving into entirely new markets and succeeding. Any longterm holder of AAPL has to ask what Apple's next big thing is going to be.
Under Steve, Apple has shown great restraint in diluting their brand and releasing too many products. Before Steve, Apple had way too many models and a muddied brand identity. IMHO, this restraint is counter to the MBA mentality - and I think counter to MS's tactics. I firmly believe Apple has dozens of products lurking in their labs that other companies would have turned into products years ago. But Apple's leadership has chosen to release limited, well-defined products with extreme polish and attention to detail. And even with that attention to detail they stumble - see "antenna-gate".
With the iOS based aTV, and the GoogleTV and other such boxes becoming more mainstream, I think we'll see aTV change from being a hobby to a real profit center for Apple.
Comments
I make mistakes on a daily basis. But I am never so vested in my positions that I will not reverse my position at a moment's notice if necessary.
Out of curiosity, is your dismissiveness academic or based on experience, and if so, what has been your annualized return for say, the last 3 years?
We all make mistakes. But, IMHO, analyzing fundamentals at least allows you to learn from mistakes.
I don't discuss my job, nor my returns. No offense intended.
I understand your argument for that, but at some point don't you get PE compression as growth is considered unsustainable by large number theory? XOM's balance sheet looks more compelling than AAPL in many ways, but of course there isn't the earnings growth without oil price growth.
I've heard that argument, but it seems to me it's not so much the rule of large numbers as the difficulty associated with continuing to crank out new hit products to sustain a growth rate. If it was simply a matter of the rate of the growth slowing because of increased profits, then I think we'd already have seen some indication of that effect kicking in. Years ago, probably. If the growth rate does decline, I think it would be a direct result of Apple's "next big thing" not being big enough.
There valued as the second highest valued company in the world. But there profits rant the highest in the world not even close. So how much do you think they should be valued at?
My thoughts on AAPL currently go like this. They don't pay dividends so until you sell you haven't made anything. So you have to question how much higher can the price go? How much more than every other company in the world can they be worth? And if you think the price can go to $350 that means your betting that at some point someone else is going to think it will go to $400 to make them actually pay that price.
It all comes back to the dividends. For an investment to be worth something you need a return. Once the stock reaches a point where it's unlikely to rise it's effectively giving a 0% return on investment. So now I think if you've got stock sell it, or some of it. Look at the price of google and it's history. If you're going for an increase in value they have a lot of room to move upwards very easily in comparison to apple.
Dividends are nice, but they don't fundamentally change a stock's value. Smart management involves reinvesting your dividends to maximize return. That is no different than relying on the stock price to increase.
As the good doctor said, stocks are valued based on forward cash flow/earnings. If today you think AAPL will be at $400 in 12 months, you are effectively saying you expect them to have a sustainable growth of 40% in that time frame, with minimal risk that profits will decline after that. With that hypothesis, there are different ways to invest $5,000 that will lead to different returns.
If you want to realize gains short-term, you can always trade around a position, relying on normal ups and downs of the market
The 'too big to grow much more' concept is really not well thought out. As anti-apple types have loved to point out for years, Apple only has a small penetration into most markets outside of iPods/ music. The fact they are far more profitable in those other sectors than those with the lions share is only more reason to see very healthy growth potential in those very areas. AAPL is ridiculously under valued.
I appreciate this always brings cries of derision from the math geniuses pointing out there is no numerical gain, but I'd like to see a stock split because it encourages more people to buy as they 'seem' as more affordable.
nice post
There valued as the second highest valued company in the world. But there profits rant the highest in the world not even close. So how much do you think they should be valued at?
My thoughts on AAPL currently go like this. They don't pay dividends so until you sell you haven't made anything. So you have to question how much higher can the price go? How much more than every other company in the world can they be worth? And if you think the price can go to $350 that means your betting that at some point someone else is going to think it will go to $400 to make them actually pay that price.
It all comes back to the dividends. For an investment to be worth something you need a return. Once the stock reaches a point where it's unlikely to rise it's effectively giving a 0% return on investment. So now I think if you've got stock sell it, or some of it. Look at the price of google and it's history. If you're going for an increase in value they have a lot of room to move upwards very easily in comparison to apple.
You don't have to have dividends to generate an income from long stock positions that you are holding. You can sell calls to generate income on stocks that you own for instance. This is known as a covered call.
We all make mistakes. But, IMHO, analyzing fundamentals at least allows you to learn from mistakes.
I don't discuss my job, nor my returns. No offense intended.
No offense taken. I do however take exception to your statement that apparently only analyzing fundamentals can let you learn from your mistakes.
That's just silly. I have had positive returns through the worst bear market we have seen in a long while. Do you honestly think that would have been possible if I hadn't learnt from mistakes, which admittedly took me a while?
When I worked as an engineer (I retired in my late '40's) I encountered a lot of guys with advanced degrees who had great theoretical knowledge who were pretty lame when it came to solving practical problems, especially at crunch time.
There are lots of guys who can talk the talk. Walking the walk is another matter.
Dividends are nice, but they don't fundamentally change a stock's value. Smart management involves reinvesting your dividends to maximize return. That is no different than relying on the stock price to increase.
As the good doctor said, stocks are valued based on forward cash flow/earnings. If today you think AAPL will be at $400 in 12 months, you are effectively saying you expect them to have a sustainable growth of 40% in that time frame, with minimal risk that profits will decline after that. With that hypothesis, there are different ways to invest $5,000 that will lead to different returns.
If you want to realize gains short-term, you can always trade around a position, relying on normal ups and downs of the market
Maybe my view is a little simplistic (I'm not claiming to be any kind of expert because I'm not) but essentially you invest money to make a return. If the company you invest in pays dividends then each you you've made some money which of course you could re-invest to make even more.
If it doesn't then you are basically betting that the value of the stocks are going to increase. But as in your example if in 12 months time the value is at $400 the only way it could be worth that is if someone else thinks the value is going to be worth more than that in 12 months time and therefore wants to buy it.
Take Microsoft for example its price is basically flat. If it didn't pay a dividend then you would be making nothing, apart form being a relitively safe place to keep your money there would be no point in investing. And if you had shares that wern't going up, and you wern't recieving any other form of return it would be sensible to sell and invest in something else. The more people that do that the more the share price will start to drop.
Now my biggest issue with Apples price is what they actually sell. Nobody doubts that there current product line up is amazing. But a big part of it is the iPhone, not one company has managed to always have "must have phone" for over a decade. Apples 3 years in and I would say is going to remain being at the top for a few more versions yet. But unless they can come up with a phone that is completely different to the iPhone and is also the next big thing, what is it that will keep them at the current level in 7 years time let alone still be seen as a company who's definetly going to keep growing to warrent investing in something that only makes are return based on it's ability to grow.
Still, I stand by what I said. Investment is a numbers game, and one should never put too many of your eggs in one basket. ... I had no way of knowing that the stock would *not* go to 0.
About the time of its "free fall" period, AAPL was trading for practically its cash value. The only significant risk at that time was that the iMac would completely flop leaving Apple with no revenue to support itself. The curious part was that stock analysts were all bearish at the time. As I recall, the very same analysts were bulls prior to its free fall. I have no use for analysts.
I know you're exaggerating, but the likelihood of AAPL "going to zero" was nil.
Warren Buffet became a multibillionaire by making precisely these kinds of acquisitions. He is not a gambler, neither am I. Still, when he bought KO he held, even as it fell 50%. If the fundamental reasons for buying a company at $25 were sound, they're even more sound should it fall to $11. To sell because the market is running away from a stock makes no sense. It's like following a stampeding herd - eventually you'll run off a cliff.
Unfortunately (for him) Buffet does not buy technology companies, since he claims he does not understand them. I can't blame him for that, since it is especially challenging to identify a tech company that can "pull a rabbit out of a hat" consistently as Dr Millmoss said.
But, as Warren Buffet said, when it's raining money, get a bucket.
It's easy to say I should have done this or that with the benefit of hindsight.
Having followed Apple since about 1980 or so gave me the benefit of twenty years of hindsight. The only really young, successful investors are just lucky.
The reaction to the next earnings report is going to be very interesting.
Yes. For years, I was able to strongly correlate AAPL to its earnings reports:
1. steady run-up prior to the report
2. report of record, blowout earnings
3. sell-off after the report
However, this hasn't held true for the past few quarters. It's uncharted territory for me.
Yes. For years, I was able to strongly correlate AAPL to its earnings reports:
1. steady run-up prior to the report
2. report of record, blowout earnings
3. sell-off after the report
However, this hasn't held true for the past few quarters. It's uncharted territory for me.
I use the consensus plus 10% rule of thumb. If Apple doesn't beat the street by that much, the stock will fall. It seems to hold true, within pretty narrow margins plus or minus. The secret to AAPL's recent success after earnings reports is beating the street by 15% or more.
Now my biggest issue with Apples price is what they actually sell. Nobody doubts that there current product line up is amazing. But a big part of it is the iPhone, not one company has managed to always have "must have phone" for over a decade. Apples 3 years in and I would say is going to remain being at the top for a few more versions yet. But unless they can come up with a phone that is completely different to the iPhone and is also the next big thing, what is it that will keep them at the current level in 7 years time let alone still be seen as a company who's definetly going to keep growing to warrent investing in something that only makes are return based on it's ability to grow.
Sure, Apple will have to keep coming up with new versions of the iPhone, just as they have to keep coming up with new version of the Mac. That's about remaining competitive in the markets they are already in. But the ability to grow within current markets is inherently limited. Tilling existing fields is not enough to maintain the kind of explosive growth in earnings we've seen from Apple over the last few years. This growth has been the function of Apple diving into entirely new markets and succeeding. Any longterm holder of AAPL has to ask what Apple's next big thing is going to be. Right now they are riding the iPhone and the iPad, but those growth curves will very likely begin to flatten over the next couple of years. Something else yet unknown will have to drive earnings growth or that curve will begin to flatten too.
Another thought: This illustrates the problem with Microsoft. They can continue to ride the substantial profits from their existing core markets, but this provides them with few opportunities for growth, and they have yet to find another new market they can enter to drive earnings growth. Not that they haven't tried -- and failed. Their flat stock price is a direct result of this failure. Apple has been hitting the ball over the wall at every at-bat. But for how long?
I use the consensus plus 10% rule of thumb.
Interesting! I'll keep that in mind for the 18th.
About the time of its "free fall" period, AAPL was trading for practically its cash value. The only significant risk at that time was that the iMac would completely flop leaving Apple with no revenue to support itself. The curious part was that stock analysts were all bearish at the time. As I recall, the very same analysts were bulls prior to its free fall. I have no use for analysts.
I know you're exaggerating, but the likelihood of AAPL "going to zero" was nil.
Warren Buffet became a multibillionaire by making precisely these kinds of acquisitions. He is not a gambler, neither am I. Still, when he bought KO he held, even as it fell 50%. If the fundamental reasons for buying a company at $25 were sound, they're even more sound should it fall to $11. To sell because the market is running away from a stock makes no sense. It's like following a stampeding herd - eventually you'll run off a cliff.
Unfortunately (for him) Buffet does not buy technology companies, since he claims he does not understand them. I can't blame him for that, since it is especially challenging to identify a tech company that can "pull a rabbit out of a hat" consistently as Dr Millmoss said.
But, as Warren Buffet said, when it's raining money, get a bucket.
Having followed Apple since about 1980 or so gave me the benefit of twenty years of hindsight. The only really young, successful investors are just lucky.
We clearly have different criteria. In the case of my trade, AAPL still had a ways to drop, and I would not have broken even for about 5 years. That is way too long a horizon for me.
That it would come from being an almost irrelevant niche player to one of the most influential and profitable corporations in the world in less than a decade is totally amazing. I think most observers, including the most ardent fanbois would not have predicted this turnaround.
Take another great technology company - Cisco (CSCO). CSCO had it's peak in 2000 at around 80 or so. I feel sorry for the hapless investor who increased his investment as the stock plunged for months. Now 10 years later, the stock is still at 22 and change.
Mr. Buffett is an extraordinary investor and human being, and certainly his methods have brought his investors great returns. There certainly is a place for that type of value investing.
It's just not for me. I do not like to commit capital for long periods on stocks that are in a sideways trend. My pockets are not that deep. I like to see momentum (up or down) going which almost guarantees that I will miss buying the bottoms, and with my rules will probably miss selling the tops. Oh well. If I can catch much of the move long or short, I am perfectly fine with this.
I am a short term trader, but the same hold true for long term investors - Have a plan, think it through and act on it. Do not be afraid to make course corrects as conditions change. Do not be haphazard or you will certainly come to grief sooner or later. Protect your capital. And as a friend of mine says, the only thing worse than being wrong is staying wrong.
We clearly have different criteria. In the case of my trade, AAPL still had a ways to drop, and I would not have broken even for about 5 years. That is way too long a horizon for me.
That it would come from being an almost irrelevant niche player to one of the most influential and profitable corporations in the world in less than a decade is totally amazing. I think most observers, including the most ardent fanbois would not have predicted this turnaround.
Take another great technology company - Cisco (CSCO). CSCO had it's peak in 2000 at around 80 or so. I feel sorry for the hapless investor who increased his investment as the stock plunged for months. Now 10 years later, the stock is still at 22 and change.
Mr. Buffett is an extraordinary investor and human being, and certainly his methods have brought his investors great returns. There certainly is a place for that type of value investing.
It's just not for me. I do not like to commit capital for long periods on stocks that are in a sideways trend. My pockets are not that deep. I like to see momentum (up or down) going which almost guarantees that I will miss buying the bottoms, and with my rules will probably miss selling the tops. Oh well. If I can catch much of the move long or short, I am perfectly fine with this.
I am a short term trader, but the same hold true for long term investors - Have a plan, think it through and act on it. Do not be afraid to make course corrects as conditions change. Do not be haphazard or you will certainly come to grief sooner or later. Protect your capital. And as a friend of mine says, the only thing worse than being wrong is staying wrong.
If you discount for the tech bubble, the chart for CSCO is the classic growth to value transition. There's a place in a diversified portfolio for value stocks. I also own PEP, which isn't exciting, but it's still a great set-and-forget investment.
The rule for long term investors is very different than for traders. Traders are gamblers, they don't need a plan except to try to guess right. Even the pros can't do that with any consistency. Very few of them even beat market average returns on a more than sporadic basis.
The plan most people ought to have is to not own individual stocks. Their best strategy is to buy a mix of index funds and keep them balanced with their age and risk tolerance. Your admission that you miss bottoms and tops suggests that you'd probably be better off that way too.
If you discount for the tech bubble, the chart for CSCO is the classic growth to value transition. There's a place in a diversified portfolio for value stocks. I also own PEP, which isn't exciting, but it's still a great set-and-forget investment.
The rule for long term investors is very different than for traders. Traders are gamblers, they don't need a plan except to try to guess right. Even the pros can't do that with any consistency. Very few of them even beat market average returns on a more than sporadic basis.
The plan most people ought to have is to not own individual stocks. Their best strategy is to buy a mix of index funds and keep them balanced with their age and risk tolerance. Your admission that you miss bottoms and tops suggests that you'd probably be better off that way too.
As you suggest, guessing right is a crapshoot. Statistically I am wrong slightly more often than I am right. Now, if I lost as much on losing trades as I gained on winners, that would be a recipe for disaster. The key is money/risk management. I try to bail fairly quickly when the trade goes against me, and hold on as long as I can when it is in my favor. That is counter to what most try to do. It is a natural tendency to want to hold on when things are not in your favor, and bail when you have made a profit. These are tendencies the trader has to fight against. There are days when I will make, say, 4 losers, and 1 profitable trade and yet end the day with a profit.
Intraday, I buy bounces off support and sell when it gets to resistance or vice versa for a short. If I can get, say, 8 or 9 points on a 12 point move on the S&P futures, I am quite happy. Missing the tops and bottoms is what happens when you wait for confirmation for the candle to close on the timeframe that one is working on, but it does give you better odds on making a profitable trade.
This is definitely not for everyone, and it has taken me a while to get comfortable doing it. This is my day job.
That is not to say that I am strictly short term in all my trading activities. I do have long term retirement accounts which are managed much more conservatively, and with more of an emphasis on dividend paying stocks held long term.
As to whether or not I would be better off with a mix of index funds, during the recent financial crisis where many saw huge losses in their investments, I still was able to maintain double digit (albeit low double digit) realized gains overall.
The rule for long term investors is very different than for traders.
Well said. I've never attempted to be a trader.
Having been a long time Apple user, I'm simply amazed how large Apple has become, especially after being beat up in the early 90's. I think Steve Jobs needs to be recognized as one of the greatest businessmen of all time.
Almost $20 billion in one quarter! How far off is Apple from making $100 billion annually?
I think Jobs has made it his mission to bury Microsoft ever since Gates left. He has set Apple on an excellent trajectory thus far.
Sure, Apple will have to keep coming up with new versions of the iPhone, just as they have to keep coming up with new version of the Mac. That's about remaining competitive in the markets they are already in. But the ability to grow within current markets is inherently limited. Tilling existing fields is not enough to maintain the kind of explosive growth in earnings we've seen from Apple over the last few years. This growth has been the function of Apple diving into entirely new markets and succeeding. Any longterm holder of AAPL has to ask what Apple's next big thing is going to be.
Under Steve, Apple has shown great restraint in diluting their brand and releasing too many products. Before Steve, Apple had way too many models and a muddied brand identity. IMHO, this restraint is counter to the MBA mentality - and I think counter to MS's tactics. I firmly believe Apple has dozens of products lurking in their labs that other companies would have turned into products years ago. But Apple's leadership has chosen to release limited, well-defined products with extreme polish and attention to detail. And even with that attention to detail they stumble - see "antenna-gate".
With the iOS based aTV, and the GoogleTV and other such boxes becoming more mainstream, I think we'll see aTV change from being a hobby to a real profit center for Apple.
Long on AAPL.
- Jasen.