Apple’s stock price has been on a tear since July. We’ve watched it climb from less than $400 to $564 as of this morning. I’m seeing plenty of articles discussing the likelihood of Apple returning to its previous highs of about $700 but it’s lot like any of this is being driven by major news. From where I sit Apple financial news hasn’t been anything terribly exciting lately. We’ve seen a couple of quarterly reports and some pretty normal announcements about how many new iPhone models sold on launch weekend. We’ve seen the new iPad Air rollout and we’re seeing analysts speculate about how many will be sold this Christmas season.
Over at Yahoo Finance I found this recent example of a guy discussing why Apple will continue its climb. His thinking is a mix of bullish technical indicators (i.e. “The stock chart looks pretty”) and positive news including the most recent China Mobile stuff. It’s all reasonable stuff, but given the short term focus of the article he’s totally guessing.
Right now analysts think Apple will earn about $48 per share next year, so if Apple recovers to $700 it still means the stock is trading at less than 15x earnings, which is hardly expensive for a high quality growth company. But Apple isn’t really growing these days (at least on earnings), and people were concerned about further commoditization of smartphones and tablets. This explains why the stock has been so cheap lately. If Apple can actually return to earnings growth I think even $700 will be prove to be too cheap. And what if Apple releases some new product category that opens the door to significant new growth? More upwards movement in the stock. But there’s a difference between explaining the logic of a possible stock movement and actually thinking you’re some kind of market genius who can predict this stuff on a schedule.
I’ve been an Apple shareholder for many years. I was bullish on the stock when it hit $700 in 2012. I watched it decline to $400, wiping away significant value from my portfolio. But you know what? I never once worried. Experience has taught me that technology stocks can be volatile. They take wild swings. And so you can either be one of those “investors” who thinks he knows more than the market does about where a stock is going in the short term. All of the people who post comments about how obvious it is that Apple is “going to tank” or “poised to move sharply higher” fit into that category.
The truth is nobody really knows (ahead of time) where a stock moves in the short term. Everyone is guessing and nobody has a magic formula. When I started learning to invest back in the 1990s I learned this rule first, and it saved me a lot of pain.
Apple is a strong company. It’s well run, it produces excellent products and customers love to buy from them over and over again. Apple is riding several important industry trends that will continue to take many years to unfold. That’s why I like the stock.
I liked Apple stock when I bought it after the first iPhone was released. The stock price was about $166 back then, in 2007. When the stock cratered to about $120 in early 2008 I still liked it, even though I looked like a dumbass to anyone looking through their market zoom lens. In mid 2008 my stock was trading higher than what I paid for a while, but it crashed again (as did the whole market) in the fall of 2008. I still loved the shares as they traded under $100. Anybody watching the mobile industry was seeing Apple become more dominant, yet the stock suffered.
Those with a short term focus on stocks weren’t willing to say I’d made the right call until 2010, almost two and a half years later. When the stock peaked in 2012 I still loved it, despite a bunch of people with a short term focus screaming about how it was destined to fail.
It has only been 15 months since the last peak. The stock is well into its recovery. The business is still performing well. I’m still very optimistic on Apple’s future and I expect the stock to breach $1000 in the coming years. I don’t know when it will happen, but I believe I’ll be rewarded for my patience.
My point is this: History has shown that it makes more sense to take long term bets in good companies rather than try (and fail) and guessing what’s going to happen next week, next month, next quarter or even next year.
I don’t lose sleep when Apple crashes and I don’t get too excited when it skyrockets. I just sit back and enjoy the ride, because I believe I’m betting on the right vehicle to safely get me to new heights.
DISCLOSURE: I am long Apple. This is not investing advice, it is my personal opinion about Apple and stocks in general. Do not buy stocks unless you can stomach the ups and downs, and certainly do not buy stocks with money you will need to spend anytime in the next 5 years.