Someone from the The Panelist family who is a member of the cult of Apple asked the following question:
Hi David,
We were thinking of buying apple (speculating on iPhone earnings), was wondering what your opinion was on current valuation and if this seems like a good idea?
Because you are such a huge fan of the product, you are smart to ask the “valuation” question before investing.
Warning: I’m about to use a proof, as well as logic first professed by Yoda from Star Wars, to make a financial investing point.
As we all know, product fanatacism can also lead to emotional attachments.
Emotional attachments means you can ignore company fundementals.
Ignoring fundementals can lead to bad investing decisions.
Bad investing decisions can lead to losses.
Losses can lead to suffering.
Thus as Yoda said to the Young Anakin Skywalker: “Avoid emotional attachments.” Yoda was talking about people and fear of loss and I’m talking about investing. I disagree with Yoda on emotional attachments to people, but I still think emotional attachments to stocks are bad.
I continue with my reply regarding Apple’s iPhone and the stock:
Apple (AAPL – $124.44 ) is not cheap. It has a trailing p/e of 40 and a forcast 2008 p/e of 30. But it might fall right after the launch of iPhone. Expectations are so high and everyone is expecting huge huge sellout and success. Anything less than complete huge, crazed success will mean a fall in the stock price. However, given growth and prospects, AAPL is not crazy overpriced. It would be an okay addition to a long term retirement portfolio if you really believe in their products’ ability to innovate on an ongoing basis. If you believe the iPhone is going to be a success and you are a long-term holder, buy a little stock now and some more if it falls after the iPhone lauch.
Disclsoures and Confessions: I do not own AAPL. In Janauary I shorted Jan 2008, $80 strike puts at $6.70. Today, I could buy back those puts for $0.90. Yeah, I have a profit. As with most cases when I short puts, I should have just bought the stock. I made a profit but still feel stupid.
Only one of my four computers is an Apple. None of my financial trading or statistical software runs on that machine. I have a Dell printer that my Apple will not work with. In general, I’m annoyed with the closed nature of Apple products. I have a Nano and a Sony MP3 player. It is easier to download my music to the Sony. Sorry to be so negative on the products, I know they have a huge cult and are easy to use for most people.