My comment about the law of large numbers was not as clear as it could have been. All I meant is that there is ample empirical evidence that shows that when companies reach a certain size their ability to allocate capital effectively diminishes. Apple's growing cash hoard over the past few years is indicative of this. The size of the world economy doesn't really matter. Apple sells to a small portion of the world economy, as did Microsoft.
The GDP in 2015 depends on a large number of assumptions, so saying "look it up" as though it is a fact is misleading. What really matters is how Apple's market share and profit margins change over time.
There is way too much ad hominem in this article. Highly unprofessional.
Ignoring that, your argument is essentially two points: (1) the Fed's injection of liquidity props up AAPL and (2) Apple makes cool products that people are (and will continue to be) willing to pay a premium for. I don't necessarily disagree with either of these points, but they don't constitute a strong argument. For one, the Fed's injection of liquidity has propped up the entire market, what makes AAPL so special that it deserves to appreciate at a much greater rate? If you believe the Fed will continue injecting liquidity, why invest in APPL, as opposed to a broad market ETF?
As for Apple's "cool factor", it definitely has that now but the question is whether or not Apple can keep that in the next few years. Steve Jobs transformed Apple and generated enormous shareholder value largely by making computing so small you can hold it in your hand, making it easy to understand and use, and by paying relentless attention to design. Now that there is an iEverything (and numerous competitor products), the miniaturization revolution has mostly run out of steam (which is not to say that it's over, just that it will no longer be revolutionary). Design-wise, don't expect Apple to remain on top forever. All products that sell based on style ultimately become victims of their own success, especially products that sell on based style AND being the "hot new thing". The more successful the iPhone is (and let's be real, that's what accounts for most of APPL's profits, at least until the carrier subsidies end), the more it becomes just another smartphone and less of a "hip" or "cool" status symbol.
To avoid disappointing the highly exuberant sentiment expressed by many APPL bulls at the moment, the company will have to continue to release revolutionary products that not only upend existing markets, but create entirely new ones. That's what APPL under Steve Jobs did, and that's why AAPL has done so much better than GOOG, MSFT, and its other competitors. If you believe the company can continue doing this for many years, then by all means buy in now. But sooner or later the law of large numbers is going to catch up with Apple and the hyper growth will settle down. The shorts might not be right but the ultra bulls certainly aren't.
Markets take a new leg down as Fitch speaks on the summit result. "A 'comprehensive solution' to the current crisis is not on offer ... Hopes that the ECB would step up its actions ... appear to have been misplaced ... We still believe the ECB, ... is the only truly credible 'firewall' against liquidity and solvency crises in Europe." [View news story]
It's so ironic that markets don't fully price in these things until a ratings agency admits what's been painfully obvious for a while. Makes for good buying/selling opportunities though.
European shares close sharply higher despite little having been achieved at the summit other than the isolation of a major country from the EU. Then again, shares always seem to sky on summit results. The days and weeks after, not so much. Stoxx 50 +2.4%, Germany +2%, Italy +3.2%, U.K. +1%. Euro +0.3% to $1.3375. [View news story]
I think this is it. So many people have stated that they're in all, or mostly, cash prior to the summit, and now that it's over and the eurozone hasn't spontaneously combusted, it's time for these people to buy back in.
The inverse ETFs I follow seem to support this. SPXU and EPV (inverse equities) are down about 4.9%, while EUO (inverse euro) is down only about half a percent.
Why Apple's Cash Hoard Is Not A Problem [View article]
Just a thought: in light of the recent Netflix drama, you might not want to use the phrase "virtuous cycle" to praise a company. Netflix showed that virtuous cycles can quickly become vicious cycles.
Innovation doesn't "blind" investors. True innovation attracts them because the company is delivering something of value. Apple is not an empty dot com company whose product is a set of webpages; they are a strong company with 80 billion in cash on hand that actually make things people want and sell them at healthy margins. As far as I can tell, your argument for the $85 price target is that the stock has been decreasing lately and should continue to do so. Nice linear extrapolation.
To your specific points:
1. Steve Jobs was a very forward thinking man. His influence will still be felt for years to come. Eventually, yes, the company will change because of his absence. But his death does not suddenly make the company less innovative or profitable.
2. You conflate products sold at high margins with "price sensitive" products. These are not the same. If Apple customers were as price sensitive as you say they are they would be buying from Dell computers and Android phones. People are willing to pay a premium for Apple products because of the brand and the quality of the product. Apple products are like BMWs: you buy because of the quality and the support, knowing that you'll pay extra for it. And in our bifurcated American economy, the people who buy Apple products also tend to be the least affected by recessions.
3. The market is not saturated. Their smartphone share was around 5% last time I checked. Their share internationally is negligible. If you're going to be lazy in your analysis, you should at least use correct data.
4. Apple is the SECOND largest company by market cap. Yes, its growth will eventually slow. But a good company does not become a bad company once its growth slows, and its stock does not become worthless. If the P/E for AAPL was in the neighborhood of Amazon's, then sure, this would be a valid concern. But it's not.
5. Have you noticed that virtually all of Apple's competitors are following Apple's lead? "Imitation is the sincerest form of flattery", as the saying goes.
6. Guess, what, nobody foresaw ANY of Apple's groundbreaking products! Apple doesn't want you, or anyone else, to foresee them. That's how they have always operated. You are drawing conclusions based on your ignorance here, and not your knowledge.
How ironic that you chastise momentum traders yet recommend a sell now that the price has dropped.
It's refreshing to read an article on Apple that doesn't stubbornly insist on impending doom or fabulous riches for those who hold the stock. Thanks for the article.
I agree that the comparison between AAPL and BRK.A is far fetched.
That said, Apple doesn't just make widgets. They create interlocking systems and a brand as well. iTunes integrates with all Apple products, the app store integrates with all their phones, pretty soon Siri will be integrated with most Apple devices too. In everything they do, Apple tries to pack the most value to their customer in the smallest package. That's one reason their customers are willing to pay such high prices for it.
AAPL is arguably a more conservative (Buffett-like) investment than some of Buffett's own investments. It would be easier to reproduce Coca-Cola and their distribution system than to reproduce a single Apple product and Apple's distribution system. How's that for a moat?
Buffett has said himself that he doesn't invest in tech companies because he doesn't understand them. But tech companies have conservative value plays too, and Apple is one of them (at least for long term investors), especially right now.
If The Germans Were Serious About Stabilizing Aggregate Demand [View article]
Can you really blame them? I don't think they're naive enough to believe that the fundamental cultural differences that led to the financial disparities within the Euro zone are going to change any time soon. The Greeks riot every time someone suggests raising the retirement age, even though it's still over a decade sooner than in Germany. It may not make financial sense to pretend the problem doesn't exist, but I don't blame the Germans for rolling their eyes at this kind of behavior.
Do Not Short Apple Stock [View article]
Do Not Short Apple Stock [View article]
The GDP in 2015 depends on a large number of assumptions, so saying "look it up" as though it is a fact is misleading. What really matters is how Apple's market share and profit margins change over time.
Do Not Short Apple Stock [View article]
Ignoring that, your argument is essentially two points: (1) the Fed's injection of liquidity props up AAPL and (2) Apple makes cool products that people are (and will continue to be) willing to pay a premium for. I don't necessarily disagree with either of these points, but they don't constitute a strong argument. For one, the Fed's injection of liquidity has propped up the entire market, what makes AAPL so special that it deserves to appreciate at a much greater rate? If you believe the Fed will continue injecting liquidity, why invest in APPL, as opposed to a broad market ETF?
As for Apple's "cool factor", it definitely has that now but the question is whether or not Apple can keep that in the next few years. Steve Jobs transformed Apple and generated enormous shareholder value largely by making computing so small you can hold it in your hand, making it easy to understand and use, and by paying relentless attention to design. Now that there is an iEverything (and numerous competitor products), the miniaturization revolution has mostly run out of steam (which is not to say that it's over, just that it will no longer be revolutionary). Design-wise, don't expect Apple to remain on top forever. All products that sell based on style ultimately become victims of their own success, especially products that sell on based style AND being the "hot new thing". The more successful the iPhone is (and let's be real, that's what accounts for most of APPL's profits, at least until the carrier subsidies end), the more it becomes just another smartphone and less of a "hip" or "cool" status symbol.
To avoid disappointing the highly exuberant sentiment expressed by many APPL bulls at the moment, the company will have to continue to release revolutionary products that not only upend existing markets, but create entirely new ones. That's what APPL under Steve Jobs did, and that's why AAPL has done so much better than GOOG, MSFT, and its other competitors. If you believe the company can continue doing this for many years, then by all means buy in now. But sooner or later the law of large numbers is going to catch up with Apple and the hyper growth will settle down. The shorts might not be right but the ultra bulls certainly aren't.
Buffett Admits He Was 'Dead Wrong' On Housing [View article]
The Potential European Debt Crisis You Are Not Hearing About [View article]
Markets take a new leg down as Fitch speaks on the summit result. "A 'comprehensive solution' to the current crisis is not on offer ... Hopes that the ECB would step up its actions ... appear to have been misplaced ... We still believe the ECB, ... is the only truly credible 'firewall' against liquidity and solvency crises in Europe." [View news story]
European shares close sharply higher despite little having been achieved at the summit other than the isolation of a major country from the EU. Then again, shares always seem to sky on summit results. The days and weeks after, not so much. Stoxx 50 +2.4%, Germany +2%, Italy +3.2%, U.K. +1%. Euro +0.3% to $1.3375. [View news story]
The inverse ETFs I follow seem to support this. SPXU and EPV (inverse equities) are down about 4.9%, while EUO (inverse euro) is down only about half a percent.
Why Apple's Cash Hoard Is Not A Problem [View article]
The Apple Bubble Is Ready To Burst [View article]
To your specific points:
1. Steve Jobs was a very forward thinking man. His influence will still be felt for years to come. Eventually, yes, the company will change because of his absence. But his death does not suddenly make the company less innovative or profitable.
2. You conflate products sold at high margins with "price sensitive" products. These are not the same. If Apple customers were as price sensitive as you say they are they would be buying from Dell computers and Android phones. People are willing to pay a premium for Apple products because of the brand and the quality of the product. Apple products are like BMWs: you buy because of the quality and the support, knowing that you'll pay extra for it. And in our bifurcated American economy, the people who buy Apple products also tend to be the least affected by recessions.
3. The market is not saturated. Their smartphone share was around 5% last time I checked. Their share internationally is negligible. If you're going to be lazy in your analysis, you should at least use correct data.
4. Apple is the SECOND largest company by market cap. Yes, its growth will eventually slow. But a good company does not become a bad company once its growth slows, and its stock does not become worthless. If the P/E for AAPL was in the neighborhood of Amazon's, then sure, this would be a valid concern. But it's not.
5. Have you noticed that virtually all of Apple's competitors are following Apple's lead? "Imitation is the sincerest form of flattery", as the saying goes.
6. Guess, what, nobody foresaw ANY of Apple's groundbreaking products! Apple doesn't want you, or anyone else, to foresee them. That's how they have always operated. You are drawing conclusions based on your ignorance here, and not your knowledge.
How ironic that you chastise momentum traders yet recommend a sell now that the price has dropped.
I Love Apple, But Enough Already [View article]
Can Apple Reach $10,000 A Share? [View article]
That said, Apple doesn't just make widgets. They create interlocking systems and a brand as well. iTunes integrates with all Apple products, the app store integrates with all their phones, pretty soon Siri will be integrated with most Apple devices too. In everything they do, Apple tries to pack the most value to their customer in the smallest package. That's one reason their customers are willing to pay such high prices for it.
AAPL is arguably a more conservative (Buffett-like) investment than some of Buffett's own investments. It would be easier to reproduce Coca-Cola and their distribution system than to reproduce a single Apple product and Apple's distribution system. How's that for a moat?
Buffett has said himself that he doesn't invest in tech companies because he doesn't understand them. But tech companies have conservative value plays too, and Apple is one of them (at least for long term investors), especially right now.
Can Apple Reach $10,000 A Share? [View article]
Wall Of Worry Wednesday: Time To Climb? [View article]
Internet Stocks Struggling [View article]
If The Germans Were Serious About Stabilizing Aggregate Demand [View article]