radarthekat

What I learned from Warren Buffett and 30 years in the market

But mostly from Warren Buffett.

PART 1

INVESTING VERSUS SPECULATION

It seems the first level of wisdom a prospective investor hears and integrates is the old saw about diversification. And that's about as far as it goes for many who casually participate in the market.  The problem with diversification is that, even if you are diversified, you'll still likely have in your portfolio several holdings that don't fit the definition of a good investment.

Those who go a bit farther in their studies begin to have a more nuanced comprehension and come to realize that not all businesses and opportunities represent investments. So what do these other businesses and opportunities represent if not investments? The answer is that anything that isn't an investment is speculation.  To be successful with individual stocks/businesses, you should carry in your mind a definition of these two concepts.  Here are my working definitions of the two terms:

"An investment is a commitment to holding a security as long as the underlying fundamentals and business prospects remain intact." 

Take Apple, for example. Apple shares are an investment as long as Apple continues to perform as well as it is currently performing. As long as it continues to generate the revenues and earnings it is currently generating.  Even if neither rise.

"Speculation is a bet on some future outcome, either positive or negative, that would materially change the fortunes of a business."

Note that the main difference here is that an investment relies upon the continuation of the status quo while speculation is a bet against the status quo.  

GT Advanced Technologies (GTAT), a maker of solar manufacturing equipment, is an example of a speculative bet, and one that went terribly wrong for those who made that bet.  In 2012 and 2013, GTAT saw its solar business collapse under the weight of competition from Chinese manufacturers.  Late in 2013, GTAT partnered with Apple to manufacture sapphire display glass, presumably for use on the iPhone 6.  GTAT needed that partnership to go well; it represented GTAT’s lifeline to a corporate reboot, a chance to reinvent itself in a new line of business in which it had little experience.  That reinvention, if successful, would materially enhance the value of the company.  If a failure, it would mark the collapse of GTAT as a viable business.  GTAT did fail, and filed for bankruptcy protection.  In the process, the share price went from a high of about $20 to about 40 cents.  Many of those holding the shares indignantly complained in online forums that their investment was wiped out by unscrupulous actions of GTAT's CEO and management team.  They weren’t wrong about the actions of GTAT’s management, but they were wrong in characterizing their GTAT holdings as an investment.  These people were speculating and paid a high price.

It's those who don't understand the difference between an investment and a speculative bet who always end up convinced the market is rigged. These folks likely put money into one or more companies with business models that represented a speculative bet on some unlikely outcome, lost their money and associated that experience with the entire experience of participating in the market. How many times have you heard someone say the stock market is like a casino? Well, I liken the stock market, at the hands of a participant who has done his/her research and applied appropriate metrics, to a casino where you get to see your blackjack hand and the dealer’s up card before you place your bet and where you have the option of betting big, betting small, or not betting at all on each hand. The odds are strongly in your favor, but you can still do something foolish.  If you get your head on straight, stick to companies that represent a valid investment according to the above definition, and avoid speculation, at least until you have learned the hedging and other strategies associated with successful speculation, you’ll increase both your chances of a successful investment career and your returns throughout that career.

Massiveattack87 said:

I looked at their balance sheet given their performance for Q2 2024. 

Cost of sales are down. So, Apple could improve their margin and income. At the same time, theire assets and liabilities are down. This leads to higher equity. Their FCF is stable and positive as always.

Given this fact, I understand why Apple takes the debt to buy back their stocks. 
What Apple is doing is simple: Being cash neutral. 

Apple would have no problem to have bigger cash reserves thanks to their enourmous FCF if Apple wanted to. 

At this rate of buybacks, there would be no share left in 2050. 

But all these buybacks and dividen payment work as long as Apple generates current or higher FCF. 

What we see is Apple is betting on generating the current FCF for long term. 

P.S.: Meanwhile, theire R&D expense is up QoQ and YoY. 

eriamjh said:

I don’t buy the whole concept of “legally and ethically” trained.   

I learned a lot of things from copyrighted books and movies, etc.  There no such thing as protected concepts, thoughts, ideas, or words.  Even IP is only protected from being “used” illegally and learning and understanding it isn’t “use”.    

I read a book.  I paid for it.  Maybe that’s the issue.  Patents are protected from being used, not being read or understood.  

If it’s in the internet and not behind a paywall, it’s fair use to learn from.  

If I write a book report, is that infringement?   If I am inspired by a work of art and I paint something, is that infringement?   No.  

Similar to is not the same as “copied”.  Authors and artists are just upset a computer does it and there’s no carve out in law for that… yet.  

mac_dog said:

They want access to everyone’s phones. This is about the fact that this government is having such a difficult time controlling their narrative and they want more access to be able to control it. Yes, I’m talking about the genocide in Gaza. It’s making clear to everyone the myth that the US as global peacekeeper is just that when the reality is that we are still colonizing the world and we’re the global bullies. 

avon b7 said:

This is part of what the EU had to say:

"Today's decision concludes that Apple's anti-steering provisions amount to unfair trading conditions, in breach of Article 102(a) of the Treaty on the Functioning of the European Union (‘TFEU'). These anti-steering provisions are neither necessary nor proportionate for the protection of Apple's commercial interests in relation to the App Store on Apple's smart mobile devices and negatively affect the interests of iOS users, who cannot make informed and effective decisions on where and how to purchase music streaming subscriptions for use on their device.

Apple's conduct, which lasted for almost ten years, may have led many iOS users to pay significantly higher prices for music streaming subscriptions because of the high commission fee imposed by Apple on developers and passed on to consumers in the form of higher subscription prices for the same service on the Apple App Store.

... "

Apple makes no reference to its anti-competitive behaviour in its statement and instead tries to put the spotlight on Spotify, its European nature and music streaming.