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I am a programmer, a researcher and a computer scientist on artificial intelligence. My past lives include working on two startups, two universities and one industrial research institution. I have been trading since 2004. Researching stocks is my hobby as well as an important source of income.... More
  • Confession Of An Apple Investor  0 comments
    Feb 15, 2012 5:57 AM | about stocks: GOOG, HPQ, MSFT, AAPL

    Apple longs should cheer for the recent rally of its stocks. For most part of last years, it struggles between $300 to $400 and was hit by multiple news such as passing of its charistmatic founder.

    As an Apple (NASDAQ:AAPL) long, I have been trading Apple since 2004 when there was just iPod and iMac. I bought it when it was $80 and sold it when it was $160. I bought it at $230 at around March 2010 and have been increasing the position since then. I enjoy a decent gain. As I own the stocks and prepare to hold it, it is a question of whether I should continue to do so. More importantly, I asked if it is appropriate to increase my position.

    This can be a question of you too. There are certainly other strategies to reduce this risk such as writing covered calls. Though option strategies, no matter how simple it is, requires certain amount of learning. I would recommend the readers to take of look of articles from Seeking Alpha contributors such as Rocco Pendola before they opt for an option strategy.

    This article is for people who simply want to execute the buy-and-hold strategy. Buying and holding a stock has the possibility of infinite loss. So when you would like to open/or increase a position. It is important to first analyze the potential risk/benefit.

    In the case of Apple, the potential benefits are trivial: great products and seemingliy endless innovations, great cash position, great market positions and potentials. Please refer to the articles in SA, you will see a lot of investors, fanboys or not, praising every detail. Many of these are quantative in nature and I found it hard to argue against.

    But as an Apple long, the recent rally does feel ominous. There are couple of factors one should feel concerned, all of them qualitative in nature,

    1. The Lack of a Cult Leader in a Cult-like Institution: If "Inside Apple" by Adam Labrinsky can be trusted, Steve Jobs was the benevolent dictator inside Apple. He was the person who make the final decision and make Apple focused on few products Without Steve Jobs, one possible consequence is that Apple would follow companies such as Microsoft (NASDAQ:MSFT), HP (NYSE:HPQ) or Google (NASDAQ:GOOG) and over-diversify its product line. Undoubtedly, these companies show stagnated innovations after years of being leaders of the industry. If we look at history, this is what happened when Steve Jobs left Apple.
    2. The Rise of Internal Politics: One the same vein of Point #1 Apple works similarly to the government, the great efficiency and execution seemed to rely on its highly focused, labor-divided company and secret-filled structure. In the past, the much praised design team had a higher importance the conventionally important product development team. From a tech company stand point, this is highly unusual. Again, when Steve Jobs was at helm, he was the person to mediate any conflicts. If internal politics became an issue, again this will slow down the speed of innovation and lower the quality of products.
    3. The Patent Issues: Recent events such as the Chinese Proview attempted to ban the use of the term IPad, as well as Motorola Mobile (NYSE:MMI) was able to seek a short-time injunction against Apple, are signs that Apple are facing increasingly fierce attacks from a legal standpoint.
    If history repeats, one should expect development of Apple would turn to more "value"-like than the "growth"-like, as we saw in Microsoft, Google and HP. Of course, no one can predict the future but it's always dangerous to say "this time is different"......

    Though I still feel optimistic about the company in the next 1.5 - 3 years, I found it hard to believe the company can sustain its growth given all available information. The number 1.5 to 3 is an ad-hoc estimate of how much time Apple can push their current pipeline of products, included the three rumored products, iPhone 5, iPad 3 as well as the purported iTV. Let's assume iTV really appears in the next three yearss. So what's next of Apple to motivate investors? The recent iBook 2 has rather lukewarm reaction. We might see and iPhone X+1, iPad Y+1 and an new iTV. But what's next after these? I am afraid Apple can be similar to Frank Herbert's Dune, we might not see the author's true intent of the whole story.

    In a shorter term, I expect there would be a correction after either Feb 23 the company meeting, if neither dividend or stocks split happen or Mar 7, the purported iPad3 release date. Expectation of iPad3, dividend and stock splits seem to be real reason why institutional investors are buying up the stocks now. The 10-days average RSI is indeed too high to be sustainable.

    Disclosure: I am long AAPL, GOOG.

    Additional disclosure: I may initiate a position of MSFT in the next 72 hours.I may increase my position in AAPL in the next 72 hours.

    Stocks: GOOG, HPQ, MSFT, AAPL
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