Gyroscopic Investing

MachineGhost wrote: I can't wait until its time to short Apple....

MG

Machine Ghost said this a year ago, on another Apple-related topic.

Maybe someone shorted it in their VP before the beginning of this year. 

As I write this, Apple is down about 8% in after-hours trading today, after closing down today almost 30% since its 52 week high of $705.07.  All that, despite the fact that there are record sales of iPhones.

While Apple is part of Total Stock Market and S&P 500 ETFs and index funds--meaning the stock is part of everyone's portfolio that's invested in the HBPP--it's a small enough piece of those funds that crashing won't hurt the overall portfolio.  In fact, those portfolios have been up today, and have shown strong gains since the year began.

Imagine being overweight AAPL, or any other individual stock that's crashing, in a 60/40 portfolio that's not divided into a non-correlated PP and VP.  The Apple ride felt great on the way up, but like a roller coaster, what goes up must come down (hopefully not all the way down). 

As someone who is quite overweight AAPL, I can confirm how not fun it is. I'm hoping today's after-hours dive is just a temporary anomaly. I mean, their P/E ratio is 11.something. It's not like there's some crazy bubble.

It sure feels like Apple might be becoming yesterday's darling.

From an outsiders perspective, Apple looks like an insane bargain. I dare someone to find a company of Apples caliber trading at a P/E of 11 

melveyr wrote: From an outsiders perspective, Apple looks like an insane bargain. I dare someone to find a company of Apples caliber trading at a P/E of 11 

Take a look at Microsoft or Intel.  Maybe not quite the caliber of Apple but similar PE ratios for large cap Tech.

I had a thought... For awhile, hedge funds were parking a lot of their cash in AAPL — when nothing else looked good. Now that the economy is showing signs of improvement, big investors are finding other places to park their cash. Combine that with AAPL's recent weakness and you get a large price swing.

It makes you marvel that much more over how IBM does it!

Alanw wrote:

melveyr wrote: From an outsiders perspective, Apple looks like an insane bargain. I dare someone to find a company of Apples caliber trading at a P/E of 11 

Take a look at Microsoft or Intel.  Maybe not quite the caliber of Apple but similar PE ratios for large cap Tech.

It'd be interesting to compare the PE 10 of Apple, Intel and Microsoft.  I seem to recall reading that Apple had a PE 10 of 45, so maybe the current low PE is a reflection of a recent earnings bubble  

Gosso wrote:

It'd be interesting to compare the PE 10 of Apple, Intel and Microsoft.  I seem to recall reading that Apple had a PE 10 of 45, so maybe the current low PE is a reflection of a recent earnings bubble

Great point. If you think that profits are mean reverting (makes sense in competitive industries) than PE 10 might be a good way to understand why it still might be expensive.

I laughed out loud when I saw the juxtaposition of these two articles in Google Finance this morning:

Apple Inc. (AAPL): First To The Tech Grave-Yard?
ValueWalk - 14 hours ago
The luster is finally falling off of Apple Inc. (NASDAQ:AAPL), and in the end they were just a hardware provider, who provided products which will easily be commoditized as we noted previously.

Apple Inc. sales of $54 billion and profit of $13 billion both break records
San Francisco Business Times - 17 hours ago
Computer and personal device maker Apple Inc. broke records for quarterly sales and profit with $54.5 billion in sales and $13.1 billion in profit in the quarter ended Dec. 29.

smurff wrote: Machine Ghost said this a year ago, on another Apple-related topic.

Maybe someone shorted it in their VP before the beginning of this year. 

The problem with shorting a stock in an up market is you are swimming against the tide.  Strong companies like Apple are exceptions to the rule and are very difficult to time correctly based on anything but sheer sentiment ($500 was an obvious psychological point).

Valuation wise, Apple is not exactly cheap, but it is not overvalued either.  Buying cheap won't save anyone from a down market, however.  It only pays off in the very long-term as determined by the bond-equivalent duration.

When the price of an asset takes a steep, sustained dive in the absence of an obvious financial explanation, doesn't that strongly suggest a bubble is being pricked?

Volatility is a bitch on the downside.

Apple is a fantastic company that makes money about 15 different ways.

With a forward P/E of 8 or so it looks like a great buy to me.

It makes a lot more sense to me than Amazon, for example, which is currently trading at a cool 3,380 times current earnings and 164 times forward earnings.

Apple owns the tablet space, the music player space, the cool computer space, the cell phone space, and the online music purchase space, just to name the big parts of its business.  It's a pretty impressive company with very loyal customers.

I work with a student run portion of my school's endowment and we are taking a serious look at Apple. I am huge fan of indexing and it takes something very compelling for me to get behind deviating from a passive portfolio but Apple looks like an insane bargain. People who compare it to previous bubbles are not looking at valuation metrics!

I could be wrong but I'm not so sure about Apple. Microsoft also made a lot of money and it lost favor with the market. Sometimes the lustre just comes off of what today may be a stock market darling.

Reub wrote: I could be wrong but I'm not so sure about Apple. Microsoft also made a lot of money and it lost favor with the market. Sometimes the lustre just comes off of what today may be a stock market darling.

Are you worried about the underlying business declining, or investors just becoming less enamored with the stock regardless of the underlying fundamentals?

I'm not really worried since I have no direct ownership. It's just that sometimes the stock market is irrational and doesn't follow what seems like common sense. And yesterday's darling becomes today's dog.

Reub wrote: I'm not really worried since I have no direct ownership. It's just that sometimes the stock market is irrational and doesn't follow what seems like common sense. And yesterday's darling becomes today's dog.

What you are talking about typically seems to happen when there has been dramatic P/E expansion.  When the P/E compression starts happening, a stock can easily go from a P/E of 30 to 15 and in the process lose half of its value.

With Apple, however, that P/E expansion in recent years never really happened.  It has traded pretty steadily with a P/E of 12-15.

With a current forward P/E of 9 or so, Apple looks like a great company living through a group investor delusion.

MediumTex wrote:

With a current forward P/E of 9 or so, Apple looks like a great company living through a group investor delusion.

I guess I'm dense, but which delusion are you referring to?  Your post seems to imply that the price has been reasonable the entire time.

dragoncar wrote:

MediumTex wrote:

With a current forward P/E of 9 or so, Apple looks like a great company living through a group investor delusion.

I guess I'm dense, but which delusion are you referring to?  Your post seems to imply that the price has been reasonable the entire time.

What P/E do you think Apple deserves to be trading at?

dragoncar wrote:

MediumTex wrote:

With a current forward P/E of 9 or so, Apple looks like a great company living through a group investor delusion.

I guess I'm dense, but which delusion are you referring to?  Your post seems to imply that the price has been reasonable the entire time.

Its P/E implies that it has been; even at $700/share, it never broke 15. Take a look at the P/E ratios of other hot tech companies like Netflix, LinkedIn, Amazon, or Facebook.

When using forward P/E's the margin for undervaluation is <= 6.

dragoncar wrote:

MediumTex wrote:

With a current forward P/E of 9 or so, Apple looks like a great company living through a group investor delusion.

I guess I'm dense, but which delusion are you referring to?  Your post seems to imply that the price has been reasonable the entire time.

It has.  Apple was having quarter after quarter of 50%-100% growth in revenue and profits, and the stock's P/E never broke 15.  Now it has lost 40% of its value, even though nothing much has changed other than one slightly soft quarter. 

Companies with that solid a growth and market position are just not that common and when they are trading at a forward P/E of 8.5 in retrospect it looks a lot like a group investor delusion that drove the price down that much.

A lot of amateur investors own Apple (in addition to a lot of professionals as well), and it makes sense that they are getting spooked and all selling at the same time.

It will be interesting to see how this plays out over the next 10 years.  My prediction is that Apple's days of heady growth are over and that its stock will under-perform the market over that time frame.

kka wrote: It will be interesting to see how this plays out over the next 10 years.  My prediction is that Apple's days of heady growth are over and that its stock will under-perform the market over that time frame.

Do you own any Apple products?

If so, which one(s)?

If you do own Apple products, do you see yourself buying more in the future?

I'm just curious.