AAPL - Apple Inc.

[Guest valueInv]

for me a better moat definition is

 

if the business was run by idiots (not really idiots, you know what i mean) how long will the company last

By that definition, no tech business has a moat.

 

Exactly.

Buffet made a big mistake investing in IBM.

 

Question: how long do insurance companies survive when they are run by idiots?

[hyten1]

let me clarify i don't mean literally idiots

 

i mean if a business is run by management that isn't so great, make mistakes etc etc

 

in that situation the longer the biz can last the stronger the moat, that is just my opinion, i am sure you guys have others.

 

i wouldn't say no tech company have moats, its the a matter how deep and wide the moat is, that is just how i see it, i think all company has so call "moat" its a matter how wide and deep

 

 

[Guest valueInv]

let me clarify i don't mean literally idiots

 

i mean if a business is run by management that isn't so great, make mistakes etc etc

 

in that situation the longer the biz can last the stronger the moat, that is just my opinion, i am sure you guys have others.

 

i wouldn't say no tech company have moats, its the a matter how deep and wide the moat is, that is just how i see it, i think all company has so call "moat" its a matter how wide and deep

 

Agreed!

[compoundinglife]

Viking,

 

I more thinking about iPhone and iPad as they are pretty much providing most of the earnings.

 

Regarding iPod,  it is a declining business with very low overall profit pool so it is not as likely to attract vicious competition. Similarly, if smartphone and tablet market are stagnant or growing very slowly, they becomes much less attractive markets for competitors and Apple can maintain its lead that much longer.

 

To me a moat implies something that other companies would not be able to replicate at a cost that provides decent IRR. I agree that few would be able to match Apple products usability, but they could just play catch up. When something is very new there is a big difference in features/usability, etc but as the product matures the difference in features/usability becomes much narrower. Once this stage is reached, margins would evaporate. As long as Apple's maintains that huge difference in quality, they can sustain the margins but I do not have the faintest of clues of how to handicap how long Apple would maintain this huge quality difference.

 

Looking back at companies that have developed large moats, they did not look like they are developing a moat when they are small and the moat only becomes obvious after they became very large by which time competitors did not get a chance to make in roads. With Apple, they became very big even before they had a moat. Now the profit opportunity is wide open for everyone to see. Buying Apple seems to be more like a calculated bet that the pessimism is overdone in the very short term rather than a carefully reasoned investment based on an estimate of IV 5 years out.

 

Vinod

 

Vinod you raise some interesting points. 

 

As I was reading you post, I remembered what Buffett said a few years back regarding moats.  He said the real test was if you had a large amount of capital could you compete with the business (the context was Coke)?  For Coke, the answer was he would give the money back and say don't wait your time.  That is a true test of a moat, one that would be able to easily fend of competition while maintaning/growing market position and profitability. 

 

So let's apply the same reasoning with Apple.  If you had a large amount of capital could you compete with them?  The answer is clearly yes, as several companies (samsung, microsoft, nokia, RIM, Goog (android), etc) are spending billions upon billions competing in this market.  The competition in this category have some very deep pockets.  So, I agree that IV 5 years out is very difficult to determine.  Can they easily fend off competition?  It's going to be tough.

 

Think about a little differently. RIM and Nokia were perceived to have strong moats by some. Some companies with cash (GOOG and AAPL) that were not even in that market came around and rammed down Nokia's and Rim's castle doors. So in retrospect if you thought RIM and Nokia had a strong moat you would have been wrong and it seems they failed Buffet's test. So one could conclude that by virtue of that it is unlikely that google and apple have a strong KO-like moat in the mobile device space because someone could do to them what they did to their competitors. Of course they have used their innovation, company culture, creation of ecosystems and fanatical focus on the end user to create a better moat than the previous companies but have they been able to make it as strong as something like KO?

 

The question about Apple's moat in the context of how Buffett looks at moats is unanswerable in my opinion. He looks at a moat's defensibility over a very long period of time. When thinking about Apple's moat over the next 10-15 years I don't think its possible to make a call on it. It looks like they will do very well for at least the next 3-5 years but is fending off competition for 3 to 5 years a strong moat? The whole point of the moat exercise IMO is to find a company that will continue to thrive for a very long time earning above average returns or to know which companies to avoid because they are at risk eventually.. That doesn't mean they loose today or 3 years from now, but it means they do face headwinds where it will be hard to determine today where they will be in 10 years. Competitors are and will be gunning at Apple with everything they have. Most of them will probably fail to unseat them. But one might succeed and the unseater will probably come from way out in left filed.

 

Another thing often said about strong moated companies is that the best can be run by a ham sandwich which is important because some day a ham sandwich will run them. Can Apple succeed if a ham sandwich takes over as CEO?

 

Don't get me wrong, Apple is a great company with great products. I just don't think its possible to know today if they have what Buffett would consider a strong moat. In 10 years we will know in hindsight if it was strong or not.

 

 

 

[LC]

The way I see it, tech companies with the strongest "Moats" are the systemically important companies. I.e. if you got RID of their product, "chaos" would ensue. Imagine uninstalling Windows from computers nationwide. Nobody at a desk could do any work! Imagine cisco products evaporating and having networks everywhere stop working. There would be so many holes in computer networks that it would take so long a time for businesses to recover they would go bankrupt: hence it's cheaper to keep buying Cisco products/support.

 

Is apple like that? If all iphones went "POOF" and disappeared, I think people would buy a Samsung and move on with their lives.

 

But apple isn't a tech company the way MSFT/CSCO are tech companies. Apple is more like Coke than MSFT. If Coke wound up business, people would just drink Pepsi. So you have to look at apple in a different light than you look at traditional tech company when you analyze their moat.

 

So thinking about it a bit more, what does apple compete on? Coke competes on the pleasure you get drinking a coke. MSFT/CSCO compete on their ability to enable work to be done efficiently. Apple, I think, competes on "pleasure of use". The ecosystem/culture of being an apple user and how using apple products "flow" is what their bread and butter is. Their ability to provide that "flow" to the newest consumer technologies will decide their case.

[ericd1]

I think there's another way to look at Apple's business. Sure they are a tech company, but they are also (perhaps more so) a premium retail lifestyle company. They have a "brand image" second to none in the industry. Their products are also priced as a premium product, which many are very willing to pay for.

 

Now can that be translated into a moat? I don't think so, but it should be considered as an intangible when asking the switching cost question.

 

I also believe Apple is building a bit of a moat with their iTunes store, their app store, iCloud and who knows what's next?

 

It seems to me there's a lot of intangible value not on Apples books that the current market is not taking into account. The current multiple also doesn't give any benefit to their premium product pricing, margins or cash horde. Definately not a quantifiable analysis, but I believe Apple is undervalued and I'm long Apple shares.

 

[compoundinglife]

for me a better moat definition is

 

if the business was run by idiots (not really idiots, you know what i mean) how long will the company last

By that definition, no tech business has a moat.

 

Exactly.

Buffet made a big mistake investing in IBM.

 

Question: how long do insurance companies survive when they are run by idiots?

 

AIG was founded in 1919 and while the current manager is doing a solid job, Martin Sullivan could be considered a ham sandwich for what he let happen on his watch. GEICO obviously lost its way at some point. But yes I get your point. I guess my point is yes you are right idiots can destroy insurance companies probably easier then they could a company like Coke. Which is probably why WEB prefers to own them outright rather than through passive equity.

 

How many insurance companies has Buffett owned as portfolio companies where he did not control the float eventually by purchasing the whole company. Munich RE and White Mountain come to mind, probably others but not too many I would guess. Point being he likes the business when he controls the float.

[vinod1]

So thinking about it a bit more, what does apple compete on? Coke competes on the pleasure you get drinking a coke. MSFT/CSCO compete on their ability to enable work to be done efficiently. Apple, I think, competes on "pleasure of use". The ecosystem/culture of being an apple user and how using apple products "flow" is what their bread and butter is. Their ability to provide that "flow" to the newest consumer technologies will decide their case.

 

A list of potential competitive advantages for Apple

 

1. "Pleasure of Use"

    a. Quality of Hardware

    b. Ease of use of software

2. Switching

    - iTunes

    - iCloud

    - User inertia

3. Network effects

    - Facetime

    - Availability of Apps

    - Developer base

4. Cost

    - Scale

    - Learning curve

 

#1 Usually does not last. Many examples come to mind. Sony TV's and other electronics used to command a premium for quality but as others caught up, this factor became a moot point with consumers.

 

#2 I can see how this can potentially be a big competitive advantage, but so far I do not see this as amounting to any signiificant barrier. As already mentioned many friends switched from iPhone just for the heck of it. My employer offered a choice of iPhone, Android

and Blackberry. I chose iPhone just because I did not want to carry an extra power cord. So far I regret it as email is much better on Blackberry the way I use it.

 

Then again, I can see others offering portability/compatibility with iTunes/iCloud. So it might not really amount to all that much of a barrier.

 

#3 Developer base could be a really big deal in future but it is not right now.

 

#4 Very much like #1.

 

Given the above, I am not able to have any confidence in even trying to attempt to put a valuation in terms of normalized margins or sales. This is an industry that allowed a company with negative net margins 10 years back to post annual profits of $50 billion currently. In a field that can change that rapidly, would it really be shocking to see Apple posting losses in another 10 years? I know this sounds insane right now, but that is how I think of this business. If it posts $100 billion annual profits that would not be a surprise as well.

 

I probably pissed off enough of the board members who are long Apple, I would end my ranting with this post :)

 

Vinod

[Viking]

Vinod, I don't think you are pissing anyone off. You are asking very good questions and providing solid analysis to back up your opinions. People can come to different conclusions and both be right (based on their interpretation of the information, situation etc). My wife doesn't agree with that statement but she doesn't read this blog...

 

Looking at Apple, why are we so quick to dismiss what they have done the past 8 years. We have lots of lessons to learn from. My comment earlier regarding moat and ipod was what if we are simply seeing a repeat in iphones and ipads that we saw with ipod (remember, history rhymes it does not repeat exactly). There is more to the Apple secret sauce than people realize.

 

Look at 3M - innovation is baked into their culture. They are able to deliver impressive growth year in and year out. Why are we so quick to assume 3M's competitors are a bunch of dummies and those in the tech business are so superior? Maybe 3M's competitors are better than those in teck but 3M beats them over time because of their innovation gene.

 

We are still in the early innings in the smartphone and tablet space. Lots of growth is still ahead of us.

 

Let's look at tablets. Tablets will likely outsell PC's at some point in the next few years. Microsoft is not gaining traction with tablets. What does that say about their moat with Windows? IT looks to me like Microsoft risks having Windows become largely a business OS.

 

Let's look at Samsung. They have no control over the OS as it is owned and managed by Google. Google now is a hardware player. What happens when someone comes up with a better Android device than Samsung? Samsung has huge risks in its business model moving forward.

 

Let's look at Google. They own an OS but make no money off it. It is very fractured. They make a little hardware. I am not sure what this will look like in 10 years.

 

When you look at all the major players Apple is clearly in the best spot. They control the software, they control the ecosystem, they control the hardware and with their retail locations they also have direct contact with global consumers. It is their game to lose.

[boilermaker75]

 

 

Let's look at tablets. Tablets will likely outsell PC's at some point in the next few years. Microsoft is not gaining traction with tablets. What does that say about their moat with Windows? IT looks to me like Microsoft risks having Windows become largely a business OS.

 

 

 

This is just anecdotal, but I work at a research university. I was in a meeting yesterday and all 7 of us were from different departments--engineering, communications, agriculture, vet science, business, atmospheric science, and pharmacy. Five people there had their ipads with them. I was one of the other two and I have an ipad.

[rmitz]

A list of potential competitive advantages for Apple

 

1. "Pleasure of Use"

    a. Quality of Hardware

    b. Ease of use of software

2. Switching

    - iTunes

    - iCloud

    - User inertia

3. Network effects

    - Facetime

    - Availability of Apps

    - Developer base

4. Cost

    - Scale

    - Learning curve

 

#1 Usually does not last. Many examples come to mind. Sony TV's and other electronics used to command a premium for quality but as others caught up, this factor became a moot point with consumers.

 

First off, I'd like to say that you're not pissing people off with a solid exchange of views.  I wouldn't be responding otherwise.  Now I wanted to mention that if we think back to Sony, why did they start to lose?  They started to lose when they lost sight of who their customers were, and of pleasing the customer.  It transformed from a company run by engineering and innovation to one run by sales administrators, wanted to protect their IP and gold.  Sony was never as fanatical about design as Apple was.  I say was because I do see some chinks in the design armor lately where engineers are winning over designers.

 

#2 I can see how this can potentially be a big competitive advantage, but so far I do not see this as amounting to any signiificant barrier. As already mentioned many friends switched from iPhone just for the heck of it. My employer offered a choice of iPhone, Android

and Blackberry. I chose iPhone just because I did not want to carry an extra power cord. So far I regret it as email is much better on Blackberry the way I use it.

 

This will depend on age and available time.  As people get older, those using apple products tend to be well-off.  At the young end it can be more of a functionality/fad.  In the older group, time is extremely valuable.  Someone asked why people would spend $50 on a shuffle.  Well, that is a trivial amount of money for someone in a good job--to switch away from the apple ecosystem could take hours of time depending on how much that person has invested--there are lots of details.  Don't forget people's own value of time in your analysis.

 

Then again, I can see others offering portability/compatibility with iTunes/iCloud. So it might not really amount to all that much of a barrier.

 

#3 Developer base could be a really big deal in future but it is not right now.

 

I think you'd need more supporting evidence for this statement.  Developers go to where the money is for their product.  Some are less concerned, but the majority have to make a living.  Apple's developer base is stronger than I've ever seen it, and particularly in the iOS segment, it's more profitable for them to be there. I don't think anyone would argue that this cannot change over time. Aside: I see in the end that the desktop/laptop line will be more for creators/developers--the vast majority of people out there are more consumers of content, for which tablets are just fine. 

 

And for the record, I'm not long Apple right now.

[DCG]

4th Gen iPad now available in 128 GB.

 

http://www.macworld.com/article/2026635/apple-announces-128gb-ipad.html#lsrc.fb_mw

[PlanMaestro]

Overshooting?

http://www.competitivefocus.com/overshoot.htm

http://hbswk.hbs.edu/item/2270.html

 

4th Gen iPad now available in 128 GB.

 

http://www.macworld.com/article/2026635/apple-announces-128gb-ipad.html#lsrc.fb_mw

[DCG]

Overshooting?

http://www.competitivefocus.com/overshoot.htm

http://hbswk.hbs.edu/item/2270.html

 

4th Gen iPad now available in 128 GB.

 

http://www.macworld.com/article/2026635/apple-announces-128gb-ipad.html#lsrc.fb_mw

 

From an article on zdnet: "Is there a demand for a 128GB iPad? According to Apple, companies are "regularly utilizing large amounts of data such as 3D CAD files, X-rays, film edits, music tracks, project blueprints, training videos and service manuals" and these users will "all benefit from having a greater choice of storage options for iPad.""

[boilermaker75]

Overshooting?

http://www.competitivefocus.com/overshoot.htm

http://hbswk.hbs.edu/item/2270.html

 

4th Gen iPad now available in 128 GB.

 

http://www.macworld.com/article/2026635/apple-announces-128gb-ipad.html#lsrc.fb_mw

 

From an article on zdnet: "Is there a demand for a 128GB iPad? According to Apple, companies are "regularly utilizing large amounts of data such as 3D CAD files, X-rays, film edits, music tracks, project blueprints, training videos and service manuals" and these users will "all benefit from having a greater choice of storage options for iPad.""

 

We had our house appraised a year ago so that we could take out a mortgage so we could essentially turn around and loan the money to our daughter to buy a property. The guy who did the appraisal took all his notes on the ipad and used the ipad to photograph all the rooms in our house. I can envision many such business uses for ipads.

[Guest valueInv]

Overshooting?

http://www.competitivefocus.com/overshoot.htm

http://hbswk.hbs.edu/item/2270.html

 

4th Gen iPad now available in 128 GB.

 

http://www.macworld.com/article/2026635/apple-announces-128gb-ipad.html#lsrc.fb_mw

 

From an article on zdnet: "Is there a demand for a 128GB iPad? According to Apple, companies are "regularly utilizing large amounts of data such as 3D CAD files, X-rays, film edits, music tracks, project blueprints, training videos and service manuals" and these users will "all benefit from having a greater choice of storage options for iPad.""

 

We had our house appraised a year ago so that we could take out a mortgage so we could essentially turn around and loan the money to our daughter to buy a property. The guy who did the appraisal took all his notes on the ipad and used the ipad to photograph all the rooms in our house. I can envision many such business uses for ipads.

 

Many of the newer food service retail in San Francisco use iPad for POS. I've never seen an Android device take a payment.

[fareastwarriors]

Overshooting?

http://www.competitivefocus.com/overshoot.htm

http://hbswk.hbs.edu/item/2270.html

 

4th Gen iPad now available in 128 GB.

 

http://www.macworld.com/article/2026635/apple-announces-128gb-ipad.html#lsrc.fb_mw

 

From an article on zdnet: "Is there a demand for a 128GB iPad? According to Apple, companies are "regularly utilizing large amounts of data such as 3D CAD files, X-rays, film edits, music tracks, project blueprints, training videos and service manuals" and these users will "all benefit from having a greater choice of storage options for iPad.""

 

We had our house appraised a year ago so that we could take out a mortgage so we could essentially turn around and loan the money to our daughter to buy a property. The guy who did the appraisal took all his notes on the ipad and used the ipad to photograph all the rooms in our house. I can envision many such business uses for ipads.

 

Many of the newer food service retail in San Francisco use iPad for POS. I've never seen an Android device take a payment.

 

yup ipad with Square. nice combo.

[DCG]

Overshooting?

http://www.competitivefocus.com/overshoot.htm

http://hbswk.hbs.edu/item/2270.html

 

4th Gen iPad now available in 128 GB.

 

http://www.macworld.com/article/2026635/apple-announces-128gb-ipad.html#lsrc.fb_mw

 

From an article on zdnet: "Is there a demand for a 128GB iPad? According to Apple, companies are "regularly utilizing large amounts of data such as 3D CAD files, X-rays, film edits, music tracks, project blueprints, training videos and service manuals" and these users will "all benefit from having a greater choice of storage options for iPad.""

 

We had our house appraised a year ago so that we could take out a mortgage so we could essentially turn around and loan the money to our daughter to buy a property. The guy who did the appraisal took all his notes on the ipad and used the ipad to photograph all the rooms in our house. I can envision many such business uses for ipads.

 

A good friend of mine is a Director at a hospital and I was chatting w/him over the weekend and I was pretty blown away on the amount of things they use iPads for.

[Palantir]

I was at a gyro shop, and the only electronic device they had in that brand new shop was an iPad. Very much a swiss army knife.

[boilermaker75]

I teach at a university. My style is chalk and talk. (I hate PowerPoint and think it is the worst thing that could have happened to education.  But that is a discussion for another time and thread.) Last semester I started to use an ipad in class. What I use it for are to project figures from the text, short video demonstrations, and animations. I like the ability to draw on a figure, although I haven’t found a stylist that I like yet.  If I found a stylist I like, I would do much more writing on the ipad in class.

 

I can envision the ipad being a nice replacement for those overhead projectors with those acetate scrolls you write on.

 

[Parsad]

I can envision the ipad being a nice replacement for those overhead projectors with those acetate scrolls you write on.

 

Who the hell still uses those?  ;D  Even Vancouver elementary schools don't use those anymore.  Cheers!

[alertmeipp]

Only Apple can make headline with a release that is so insignificant.

 

Retina display and 128G!! I must get one.

[boilermaker75]

I can envision the ipad being a nice replacement for those overhead projectors with those acetate scrolls you write on.

 

Who the hell still uses those?  ;D  Even Vancouver elementary schools don't use those anymore.  Cheers!

 

 

Now we move OT. Some reasons I don’t like PowerPoint. Instructors go too fast. Students are too passive. The more senses you use, including touch as in taking notes, the better you remember. (Yes you can hand out copies of your slides with lots of blanks the students have to fill in, but that is no where as good as taking complete notes. Maybe filling in the blanks keeps them awake, maybe not.)

 

I have had students thank me for not using PowerPoint.

 

http://www.huffingtonpost.ca/mitch-joel/powerpoint-tips_b_1092486.html

 

I like writing on a chalkboard, but I got away from that and went to the acetate overhead. The chalkboard is nicer in that there is more space to write on. There are several reasons I switched. Writing on a chalkboard you are always blocking some of the board. My class size is usually about 60 students. The chalkboard is not as visible in such a room as an overhead projection. Writing on a chalkboard I have my back to the class, writing on the acetate overhead projector I am facing the class.

 

There are advantages to not turning your back on a class,  :) . I can tell from their faces whether they are lost, bored, or getting it. It is much more interactive when I face the students, they tend to more readily ask questions.

 

Your are right, acetate overhead projectors are disappearing and I am having trouble getting them some semesters--why I envision the ipad as a potential replacement for me.

 

So even though I use an acetate overhead projector instead of a chalkboard, I still think of my teaching style as chalk and talk.

 

Cheers!

 

[Parsad]

I can envision the ipad being a nice replacement for those overhead projectors with those acetate scrolls you write on.

 

Who the hell still uses those?  ;D  Even Vancouver elementary schools don't use those anymore.  Cheers!

 

 

Now we move OT. Some reasons I don’t like PowerPoint. Instructors go too fast. Students are too passive. The more senses you use, including touch as in taking notes, the better you remember. (Yes you can hand out copies of your slides with lots of blanks the students have to fill in, but that is no where as good as taking complete notes. Maybe filling in the blanks keeps them awake, maybe not.)

 

I have had students thank me for not using PowerPoint.

 

http://www.huffingtonpost.ca/mitch-joel/powerpoint-tips_b_1092486.html

 

I like writing on a chalkboard, but I got away from that and went to the acetate overhead. The chalkboard is nicer in that there is more space to write on. There are several reasons I switched. Writing on a chalkboard you are always blocking some of the board. My class size is usually about 60 students. The chalkboard is not as visible in such a room as an overhead projection. Writing on a chalkboard I have my back to the class, writing on the acetate overhead projector I am facing the class.

 

There are advantages to not turning your back on a class,  :) . I can tell from their faces whether they are lost, bored, or getting it. It is much more interactive when I face the students, they tend to more readily ask questions.

 

Your are right, acetate overhead projectors are disappearing and I am having trouble getting them some semesters--why I envision the ipad as a potential replacement for me.

 

So even though I use an acetate overhead projector instead of a chalkboard, I still think of my teaching style as chalk and talk.

 

Cheers!

 

Within the next 5-10 years, alot of those chalkboards will be replaced by touch screens or interactive projectors, and you'll feel like you are still using a chalkboard, except it will have color, no gritty chalk, and definitely none of those dusty chalk brushes!  ;D  Although I used to love smashing them together as a child and watching the huge puff of chalk dust float into the air.  Cheers!

[vinod1]

Vinod, I don't think you are pissing anyone off. You are asking very good questions and providing solid analysis to back up your opinions. People can come to different conclusions and both be right (based on their interpretation of the information, situation etc). My wife doesn't agree with that statement but she doesn't read this blog...

 

Looking at Apple, why are we so quick to dismiss what they have done the past 8 years. We have lots of lessons to learn from. My comment earlier regarding moat and ipod was what if we are simply seeing a repeat in iphones and ipads that we saw with ipod (remember, history rhymes it does not repeat exactly). There is more to the Apple secret sauce than people realize.

 

Look at 3M - innovation is baked into their culture. They are able to deliver impressive growth year in and year out. Why are we so quick to assume 3M's competitors are a bunch of dummies and those in the tech business are so superior? Maybe 3M's competitors are better than those in teck but 3M beats them over time because of their innovation gene.

 

We are still in the early innings in the smartphone and tablet space. Lots of growth is still ahead of us.

 

Let's look at tablets. Tablets will likely outsell PC's at some point in the next few years. Microsoft is not gaining traction with tablets. What does that say about their moat with Windows? IT looks to me like Microsoft risks having Windows become largely a business OS.

 

Let's look at Samsung. They have no control over the OS as it is owned and managed by Google. Google now is a hardware player. What happens when someone comes up with a better Android device than Samsung? Samsung has huge risks in its business model moving forward.

 

Let's look at Google. They own an OS but make no money off it. It is very fractured. They make a little hardware. I am not sure what this will look like in 10 years.

 

When you look at all the major players Apple is clearly in the best spot. They control the software, they control the ecosystem, they control the hardware and with their retail locations they also have direct contact with global consumers. It is their game to lose.

 

Viking,

 

Agree that Apple is in the best spot, but others do not have to overtake Apple or even match Apple, they just have to have a good enough product that would cut down the margins so that ROI comes down to earth for Apple. As Greenwald says everything is a toaster in the long run.

 

I think Apple's achievements in the last several years are utterly inconceivable. This is somewhat similar to the case of a money manager who has returned 100% annualized returns over 5 years and it has been achieved via 3 or 4 stock picks only. Further we have very limited info on the process he used to pick these 3-4 stocks. Can we really say I am conservatively going to assume 50% annual returns going forward? Returns for money manager would be comparable to sales and net margins for Apple. This is the dilemma that I see with Apple.

 

3M thrives precisely because the markets for its products are so small and the profit pool is so small if you consider each product individually that it is not worth the effort for other companies. They have hundreds (maybe thousands) of products that leverage a large patent pool. This is the opposite of Apple, where there is a $500 billion to $1000 billion profit pool over the next 10 years if current margins hold.

 

Vinod