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Will Apple be the world’s largest stock?

July 28, 2011

It was interesting to see Apple shares reach an all time high of $403.91 a couple of days ago, while shares around the world were still down following fears of Greek default and record gold prices.

With a market value of over $344 billion, Apple has already overcome Microsoft the world’s largest technology firm and they are now second only to energy group ExxonMobil among US stocks. This has all happened so quickly that despite being a main player in the US stock market, Apple shares are still strangely absent from the Dow Jones Industrial Average.

Apple’s products set the benchmark for personal communication and entertainment gadgets, and the company’s fresh approach to store design has led to more success,  generating impressive sales-per-square-foot numbers. As the company goes from strength to strength and the billions pile up on the balance sheet, I found a source to help recall how bleak the future for the company looked according to the “experts” not so long ago.

N.B. Apple historical share price adjusted for splits to ease comparison with $403 price.

  • $39: “Lately hitting a new high above 77, stock in Apple is not just high-priced—37 times this year’s estimated profit—but high-fashion. … Apple doesn’t tempt me.” Robert Barker, “Apple: It May Be Too Late to Take a Bite,” BusinessWeek, February 14, 2005.
  • $12: “But behind the hype and buzz surrounding the iPod and Jobs, there are problems stewing at Apple. Its core computer business, which still accounts for 70 percent of the company’s sales, is withering. … What’s more, despite their soaring sales, iPods are depressing profitability because of their lower profit margin.” Stephen Gandel, “Why iPod Can’t Save Apple,” Money, March 24, 2004.
  • $12: “I give them two years before they’re turning out the lights on a very painful and expensive mistake.” Quotation attributed to David Goldstein, Channel Marketing Corp. Cliff Edwards, “Sorry, Steve: Here’s Why Apple Stores Won’t Work,” BusinessWeek, May 21, 2001.
  • $11: “Our conclusion is that Apple has started down a path that will lead to its demise as a serious player in the PC market. … Further, we do not believe Apple will survive its next downturn, which will presage the company spiraling into insignificance as it loses any advantage of scale.” Excerpt from Dataquest company report. “Dataquest Sounds Death Knell for Apple,” Reuters, September 23, 1997.
  • $4 “Apple has attracted a growing crowd of short-sellers, professional speculators who bet against a company by selling borrowed shares they hope to replace later at a profit if the stock falls. The short-sellers, in fact, now hold the equivalent of 10 percent of Apple’s shares.” Steve Lohr and John Markoff. “The Incredible Shrinking Apple Computer” New York Times, January 26, 1997.
  • $6: “Apple may have few options other than to shrink the company or to eventually sell out to a deep-pocketed partner.” E.S Browning and Jim Carlton, “Apple Still Hobbled Despite Write-Down,” Wall Street Journal, March 29, 1996.

Undoubtedly, over its thirty-plus years as a public company, Apple has turned out to be a very rewarding investment. One hundred shares purchased at the initial offering price of $22 in December 1980 have multiplied to 800 shares after four stock splits with a current market value in excess of $299,000. Over the same period, $2,200 invested in the S&P 500 with dividends reinvested grew to approximately $49,000. But how many investors would have tolerated the three decade wait for these rewards? At the end of 1985, for example, Apple shares were still at $22, and by the end of 2002, they had appreciated at an annual rate of only 4.4%.

How many of us could have stuck it out, especially with industry “experts” telling us at the time that Apple’s best days were behind it?

No doubt some will conclude that the case of Apple’s share price illustrates why clever timing is essential to successful investing.

But predicting the future is difficult and forecasting success or failure in the fast-changing world of technology is harder still. A tiny number of stocks available today will produce incredible results in the years ahead. Owning a broadly diversified strategy provides exposure to the world market’s unexpected winners.

Malcolm Stewart

CategoriesNews, Personal Investment Account TagsInvestment, shares, stocks, Strategy
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Rising Above The Noise – as to be published in Scotland on Sunday early June

June 3, 2011

Some investment professionals work hard to make their work confusing. They believe they have a vested interest in creating investor confusion. They use jargon that can intimidate and make it difficult to understand relatively simple concepts.

But investing is not that complicated. It can be broken down into two major beliefs.

• You believe in the ability to make superior share selections, or you don’t
• You believe in the ability to time the Markets, or you don’t

Let’s have a look at which investors have which belief systems and where you should be with your own beliefs.

If we break investment decision matrix down into four quadrants, then quadrant one is the Noise Quadrant. It characterised by investors who believe it is both possible to time the markets and pick better stocks.

They think that they or their favourite financial guru can consistently uncover mis-priced investments that will deliver Market-beating returns. In addition, they believe it’s possible to guess whether entire Market segments or geographical areas will go up or down.

The media need you to return to them time and time again and encourage this thinking to try and sell newspapers, magazines and TV shows.

Conventional wisdom is quadrant two and includes most of the financial services industry. Most professionals (including financial planners and stockbrokers) won’t bet the farm on predicting markets swings with any degree of accuracy and know that making incorrect predictions on stock selections can mean losing clients.

However, they do believe that there are fund managers and high tech information systems out there that will find undervalued securities for their clients and add value.

Most economists believe fundamentally that capital markets work and so in an efficient Market this methodology adds no value on average.

Quadrant three, Tactical asset allocation quadrant, is populated by investors that think the markets are efficient and stocks are priced accordingly, and they (and only they!) can see mis-pricing in entire Market sectors.

They believe the way to add value is by buying a Market they think is undervalued and wait until other investors realise their mistake and then selling when the market is considered to be fairly valued again.

If you believe that stock prices are priced fairly, we think it is inconsistent to accept that market prices would be incorrectly priced as, after all, this is an aggregate of the fairly priced individual securities!

No prudent investors are found in this quadrant.

Finally, and most crucially, is the Information Quadrant.

Most of the academic community and institutional investors reside here. They believe that dispassionate research into what works, and then following a rational course of action based on empirical evidence is the way to go.

As far as results from the first three quadrants are concerned, research indicates that on average, they return no better than the Market after fees, transaction costs and taxes.

Passive investments, those in quadrant four, because of their lower costs have higher returns on average than the other types of investment over time.

Clearly there are instances of Market timing and stock selection providing better returns than the passive approach but we believe these are not consistent enough to warrant the typically higher costs.

Investors need to make smart decisions about their money and we believe that they should move from the Noise Quadrant to the Information Quadrant as this is where you should be to maximise the probability of achieving all your financial goals.

For more information or to arrange a meeting with me personally, please follow the contact us link below.

Roland Oliver

CategoriesInvestment, Personal Investment Account TagsAsset Allocation, Investment, Market Timing, Stock Selection, Strategy
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