constructive Posted April 25, 2013 Share Posted April 25, 2013 No fault of Apple's, but they are in a poorly structured industry. As WEB says, "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." Has this quote ever been more misapplied? Consumer electronics has great economics, the only trick is staying on top. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted April 25, 2013 Share Posted April 25, 2013 Hey all: I think AAPL is a pretty compelling buy. Perhaps the best indication of this was Jimbo Crammer talking about it the day of it's earnings. I was running on the elliptical, so perhaps I didn't fully understand what he was saying...but he was recommending McDonalds and Kimberly Clark as better high tech alternatives? While both McDonalds and KC are good, perhaps even excellent companies, they both have P/E's of about 19? Can their balance sheets even come close to AAPL? For goodness sake, AAPL is said to have about $150/share in cash & short term investments with no debt? Additionally, AAPL is not a capital intensive business (at least at this point). So maybe Mr. Crammer's comments are like the "magazine cover" indicator? Also, I saw an article about the "CATASTROPHE" of AAPL's latest earnings report. Catastrophe? maybe that should be reserved for companies that are LOSING money. Oh well, if the market were completely rational and efficient, we would not be able to beat it! As an aside, I think some of the suppliers have been beat down unmercifully. I sold some of my small bank holdings and bought more NTE today. I think NTE is going to report better than expected numbers on Monday. Link to comment Share on other sites More sharing options...
Palantir Posted April 25, 2013 Share Posted April 25, 2013 If anything, when this management met an industry's bad economics, the management's reputation stayed intact, not the industry's. I just don't see much downside in Apple. Even if you take the pessimistic scenario that they'll contract, which is fine, I think they can still enrich shareholders like a cigarette company. I think that's the cardinal sign of a really worthy investment - just absence of downside. Even if the business declines....so what? Link to comment Share on other sites More sharing options...
Parsad Posted April 25, 2013 Share Posted April 25, 2013 If anything, when this management met an industry's bad economics, the management's reputation stayed intact, not the industry's. I just don't see much downside in Apple. Even if you take the pessimistic scenario that they'll contract, which is fine, I think they can still enrich shareholders like a cigarette company. I think that's the cardinal sign of a really worthy investment - just absence of downside. Even if the business declines....so what? Yeah, I totally agree with you on this. I don't care if a business is growing or not. It's the amount of cash I can pull out or assets I can monetize, relative to the market price. Cheers! Link to comment Share on other sites More sharing options...
Guest wellmont Posted April 25, 2013 Share Posted April 25, 2013 I would argue that Apple is one of the most understood companies out there. People parse through its data like it's a Fed statement. could not agree more. there is little we don't know about it. Link to comment Share on other sites More sharing options...
hyten1 Posted April 25, 2013 Share Posted April 25, 2013 interesting question, for me at least if you had to put your money into MSFT or AAPL and CANNOT touch it for the next 50 years which one would you pick? EDIT: change 50 years to 20 years Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted April 25, 2013 Share Posted April 25, 2013 I think Buffett would buy Microsoft over Apple. Him and Munger have commented on both companies before... I think that Buffett has definitely researched Apple (and Google). Link to comment Share on other sites More sharing options...
Parsad Posted April 25, 2013 Share Posted April 25, 2013 interesting question, for me at least if you had to put your money into MSFT or AAPL and CANNOT touch it for the next 50 years which one would you pick? None of them. Not even Google, BYD or anything else...not for 50 years. I would much rather own See's Candies if I had to lock it away for that long! Cheers! Link to comment Share on other sites More sharing options...
hyten1 Posted April 25, 2013 Share Posted April 25, 2013 parasd, i agree that wasn't what i was trying to get at you can only pick MSFT vs AAPL hy interesting question, for me at least if you had to put your money into MSFT or AAPL and CANNOT touch it for the next 50 years which one would you pick? None of them. Not even Google, BYD or anything else...not for 50 years. I would much rather own See's Candies if I had to lock it away for that long! Cheers! Link to comment Share on other sites More sharing options...
txlaw Posted April 25, 2013 Share Posted April 25, 2013 interesting question, for me at least if you had to put your money into MSFT or AAPL and CANNOT touch it for the next 50 years which one would you pick? MSFT, no question. I'd rather have GOOG though. Link to comment Share on other sites More sharing options...
VAL9000 Posted April 25, 2013 Share Posted April 25, 2013 No fault of Apple's, but they are in a poorly structured industry. As WEB says, "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." Has this quote ever been more misapplied? Consumer electronics has great economics, the only trick is staying on top. That's ridiculous. The only reason why staying on top is the trick is because it requires the constant invention of a new market, because the current markets suck. If you don't have a new market, your competitors close the innovation gap and you have terrible profits because you're fighting for market share and scale so you can make profit on price leadership instead of technology leadership. What a wonderful business to be in. Slugging it out with your competitors who are desperate for survival. This is the exact reason why the multi-decade trend in consumer electronics is here today/gone tomorrow. Look at this list of former heavyweight champions: RCA, Sony, Panasonic, Toshiba, Apple, Motorola, Nokia, Nintendo. Are you telling me that Apple is going to buck this multi-decade trend and be the leader for another 10 years? Is it "different this time"? With Apple you're guaranteed to be investing in a company who has passed their peak in terms of profitability for their current markets. These markets they compete in are very evidently showing signs of price pressure and increased competition, and the innovation gap has all-but-closed. The next step is a huge market share fight, which means further reduced profits, etc. What a lot of people seem to be buying is the option on the future of Apple. They're saying "I know their current business will decline, but I bet that they will come up with something even better!" So just call it speculation and be done with it. They *think* Apple will win the next round, and that's how they're placing their bets. But it is betting, because they really have no idea. They can't even tell me what their next product will be, so how can they tell me it will be a good place to put their money? I can tell you with certainty what WMT, WFC, MCD, and KO will be doing next year. I can also tell you that it will work about the same as it did the year before. That's a good business to be in. Can you say the same of any consumer electronics business? I'll credit Parsad for having a unique and interesting view on this investment. Not what I would think and not what I would invest in, but I can't be critical because it doesn't fall into the model I'm working in. Link to comment Share on other sites More sharing options...
rkbabang Posted April 25, 2013 Share Posted April 25, 2013 interesting question, for me at least if you had to put your money into MSFT or AAPL and CANNOT touch it for the next 50 years which one would you pick? None of them. Not even Google, BYD or anything else...not for 50 years. I would much rather own See's Candies if I had to lock it away for that long! Cheers! 50 years is an eternity in tech. There is a real and distinct possibility that Microsoft, Apple, and Google all don't exist in 50 years and I'd be willing to bet that at least one or two of them doesn't. If I had to guess I'd say Microsoft is the most likely to not exist, followed by Apple, then Google. Link to comment Share on other sites More sharing options...
compoundinglife Posted April 25, 2013 Share Posted April 25, 2013 interesting question, for me at least if you had to put your money into MSFT or AAPL and CANNOT touch it for the next 50 years which one would you pick? I would prefer to pick neither. However if forced I would probably pick MSFT. That being said since I *don't* have to lock it up for 50 years and I prefer to buy AAPL over MSFT at today's prices. My guess (no data to back this up) is that most of the time, most cheap stocks are not stocks I would want to be forced to hold for 50 years. The bottom of the 2008/2009 timeframe being an exception to that. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted April 25, 2013 Share Posted April 25, 2013 Hmm I think Microsoft is the most likely to survive, followed by Google and then Apple. Microsoft has dominant share in Windows and in Office. I think Windows has a stronger "moat" due to the huge software ecosystem around Windows. (If tech companies can have durable moats.) Google has dominant share in search (English language). I think it's like Office... these products continue to have dominant share because they are just a little bit better than the competition. (Check out Open Office... it does 90% of what Office does. The last 10% that doesn't work is annoying.) Apple doesn't have dominant >80% share in its bread and butter (smartphones and tablets). Link to comment Share on other sites More sharing options...
DCG Posted April 25, 2013 Share Posted April 25, 2013 As WEB says, "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." WHAT? So the must successful business in history, and what's frequently called the most valuable brand on planet, has a reputation for bad economics? What are you talking about? Link to comment Share on other sites More sharing options...
DCG Posted April 25, 2013 Share Posted April 25, 2013 And regarding the business in 50 years - I have not idea what Apple will be doing in 50 years, but I know that even if Apple's annual revenue declines by 50%, including the cash on hand), they can buy back the entire business in 10 years (if they didn't pay a dividend) at the current price. Link to comment Share on other sites More sharing options...
rkbabang Posted April 25, 2013 Share Posted April 25, 2013 Hmm I think Microsoft is the most likely to survive, followed by Google and then Apple. Microsoft has dominant share in Windows and in Office. I think Windows has a stronger "moat" due to the huge software ecosystem around Windows. (If tech companies can have durable moats.) Google has dominant share in search (English language). I think it's like Office... these products continue to have dominant share because they are just a little bit better than the competition. (Check out Open Office... it does 90% of what Office does. The last 10% that doesn't work is annoying.) Apple doesn't have dominant >80% share in its bread and butter (smartphones and tablets). If it was 15 years I would agree with you, but 50? All of the products you mentioned will probably be gone or changed/evolved so significantly as to be unrecognizable. Saying office software will exist in 50 years would be like someone 50 years ago saying typewriters will always exist. Yes, people still type, but the "typewriters" are unrecognizable as such, and of all the typewriter companies I think it is only IBM which was able to evolve enough and survive. The only thing I am sure of is that in 50 years there will be some kind of world-wide (solar system wide?) network which will be the evolution of what we call the internet today. Of the three companies I think (and this is just my opinion) that Google is the most likely to evolve in such a way as to still be making money doing something 50 years from now. Microsoft has never been good dealing with major changes. They got in early on the desktop PC and have ridden that market for a long time. While there will be networks and communication devices, I don't think there will be any device 50 years from now that people from today would recognize as a desktop PC, which means there is a good chance Microsoft won't exist. Link to comment Share on other sites More sharing options...
hyten1 Posted April 25, 2013 Share Posted April 25, 2013 50 years a little long, maybe 20 years is a time frame that will make people think harder, for me i would pick MSFT. DCG I am surprise "...even if Apple's annual revenue declines by 50%, including the cash on hand), they can buy back the entire business in 10 years (if they didn't pay a dividend) at the current price." really? that would be a drop of 80bil dollars in rev market cap - cash = 250bil approx so you are saying (without taking into account inflation and all the math stuff) they will still make approx 20bil a year for 10 years even with 80bil drop in rev and all the uncertainty associated with a consumer electronic/tech company? hmmm, i wouldn't bet on those metrics aapl does seem cheap base on all kinds of metric, but we all know why its trading the way it is, at the end of the day its bet if aapl can continue to innovate like they use to. i guess that's what makes a market, i am surprise by people's answer to the 50 year question with AAPL as the answer. VAL9000, i agree with your statement "What a lot of people seem to be buying is the option on the future of Apple. They're saying "I know their current business will decline, but I bet that they will come up with something even better!" So just call it speculation and be done with it. They *think* Apple will win the next round, and that's how they're placing their bets. But it is betting, because they really have no idea. They can't even tell me what their next product will be, so how can they tell me it will be a good place to put their money?" i had a position in AAPL, but i sold it, waiting to buy at lower :) Link to comment Share on other sites More sharing options...
CorpRaider Posted April 25, 2013 Share Posted April 25, 2013 Goog would be the obvious choice to me if they were focused on making money for shareholders, but I think we all look at their google self-driving car and google glass and google fiber and see where this is headed. I would pick AAPL because they have always been ok with having a smaller higher margin segment of whatever market. I could see MSFT getting into IBM's wheelhouse and taking their cookies though. Also, consumption of cola products is in rapid decline and I could envision a scenario where their health effects eventually result in societal costs being imposed via legislation or class action litigation (like tobacco). Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted April 25, 2013 Share Posted April 25, 2013 Also, consumption of cola products is in rapid decline and I could envision a scenario where their health effects eventually result in societal costs being imposed via legislation or class action litigation (like tobacco). Tobacco is arguably a good business. I think certain tobacco companies and Coca Cola have more durable moats than Microsoft. 2- I find it interesting that everybody has such different opinions on which companies will be the most durable. Link to comment Share on other sites More sharing options...
DCG Posted April 25, 2013 Share Posted April 25, 2013 Hyten1, I used $250b as the current market cap ex/cash. Current annual earnings are around $50 billion. Cut that in half and you have $25b, which comes to 10 years. I'm not taking inflation into account (this is of course just a rough estimate), and I'm saying if they produce $25b in earnings each year - I'm not assuming an annual 50% decline. Link to comment Share on other sites More sharing options...
LC Posted April 25, 2013 Share Posted April 25, 2013 Also, consumption of cola products is in rapid decline and I could envision a scenario where their health effects eventually result in societal costs being imposed via legislation or class action litigation (like tobacco). Tobacco is arguably a good business. I think certain tobacco companies and Coca Cola have more durable moats than Microsoft. 2- I find it interesting that everybody has such different opinions on which companies will be the most durable. I'll throw Gillette into the mix. The hair never stops growing, and all they need to do is price their razors cheap enough to make them disposable. Link to comment Share on other sites More sharing options...
Guest valueInv Posted April 26, 2013 Share Posted April 26, 2013 If you think that 1, competition is eroding Apple's margins 2, Apple is not innovating 3, Competition has caught up with Apple then you do not understand Apple. I think 1) & 3) is happening as we speak...yet those margins will still be higher than its peers, even though they will come down. On 2), I also think Apple is still innovating, but so are its competitors. Nothing worse than someone falling in love with a stock. I highly recommend you not do that...whether it is Apple, Fairfax, Berkshire, Google or any other stock. Market prices are there to serve you...that is the only thing you can control, as management and companies (even the best) will falter at times. Cheers! Let's address the iPhone first. On 1 - ASPs have been more or less stable..How do you know that competition is eroding margins? How do you know that it is not costs? Lets say ASPs decrease going forward. Is it because competition is forcing prices down? Is it because Apple is entering lower priced segments as the higher priced segments saturate? How do you know? On 3- If you understand Apple, you will understand that they sell simplicity and ease of use. That is their secret to their success. The iPhone was simpler than the BB, the iPad simpler than the laptop. And on and on. There's even a book about it: http://www.amazon.com/Insanely-Simple-Obsession-Drives-Success/dp/1591844835 Now lets see the reviews for the latest Android flagship device: http://allthingsd.com/20130423/galaxy-s-4-is-a-good-but-not-a-great-step-up/ http://venturebeat.com/2013/04/23/samsungs-galaxy-s4-a-crowd-pleaser-without-much-taste-review/ http://www.theverge.com/2013/4/24/4257254/samsung-galaxy-s4-review There is a common underlying theme. They keep stuffing more gimmicky features, making it more complex and unusable. They even had to introduce an "easy mode". And in the next release, they'll have to add even more features to "keep ahead" of Apple.If you work in the tech industry, you know this disease very well - its called featuritis - adding more and more features for competitive reasons until your product becomes big, slow, complex and buggy. Resisting it takes a lot of discipline and Apple is one of the few companies I have seen which has that discipline. That is why Jony Ive took over the UI - to simplify it. The competition just took two steps back. You think they're catching up? Link to comment Share on other sites More sharing options...
Guest valueInv Posted April 26, 2013 Share Posted April 26, 2013 If you think that 1, competition is eroding Apple's margins 2, Apple is not innovating 3, Competition has caught up with Apple then you do not understand Apple. :o I lol'd. Not as hard as I lol'd when you tried to prove Google's superior strategy by likening to VC strategies that returned 3.9% ;D ;D Link to comment Share on other sites More sharing options...
Guest valueInv Posted April 26, 2013 Share Posted April 26, 2013 If you think that 1, competition is eroding Apple's margins 2, Apple is not innovating 3, Competition has caught up with Apple then you do not understand Apple. I think 1) & 3) is happening as we speak...yet those margins will still be higher than its peers, even though they will come down. On 2), I also think Apple is still innovating, but so are its competitors. Nothing worse than someone falling in love with a stock. I highly recommend you not do that...whether it is Apple, Fairfax, Berkshire, Google or any other stock. Market prices are there to serve you...that is the only thing you can control, as management and companies (even the best) will falter at times. Cheers! On more thing - this is not about falling in love with a stock. This is about understanding a business whose stock you own. I have held Apple for 12 years and during most of that time, I have heard people like you sing the same song. Take a look at the links in my signature. Link to comment Share on other sites More sharing options...
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