We all know that markets are terribly short term things, don't we? Well, we're told often enough at least: the City and the stock market are only interested in what can be had now, immediately, and are not ready to invest for the long term. Venture capitalists want quick returns, not to build a solid business. The whole Anglo …
It was Many Rice Davies, not Christine Keeler.
"Norway has famously piled up its oil money into a fund rather than splurging it on current spending. Indeed, they're rather famous for saying that the oil fund cannot even be invested, let alone spent, inside Norway, but then perhaps what works for Vikings doesn't work for the rest of us."
Yes, the economists don't want the oil fund being spent in Norway because it might drive up prices, but then again the thinking isn't particularly joined up. If there's a lack of investment and a lack of jobs, people are probably going to expect welfare payments until they start working again (at least in Norway, and in the Gulf states they probably spend a lot of money just paying people not to work at all), and so the government has to spend revenues on its citizenry anyway.
Meanwhile, there's all that investment in foreign financial instruments, which arguably holds the local currency down, but leaves the investments exposed to a whole bunch of factors outside the government's control. And there has to be heightened scrutiny on what kind of investments are made: numerous scandals have emerged about some company or other being "evil" to a greater or lesser extent.
Finally, such an investment perspective isn't really very helpful in creating new opportunities in countries like Norway. So you've got oil and can get cash for it. You invest the cash and get more cash. That's great, but then the objective should be to get as much cash as possible, preserve the value of it, as well as finding ways to make more of it when the oil runs out. Buying n% of Apple, say, on the basis of letting people drill extensively for oil right now doesn't really measure up.
Money is only a means to an end: what you really want to do as a government is to guarantee a sustainably high standard of living in the long term. Norway has to figure out how to create new and genuine opportunities at home, rather than just riding the oil and gas bandwagon to the end of the road, clutching nothing more than a bunch of share certificates when the wheels finally come off.
Thank you captain obvious.
It's amazing how often the obvious needs to be said, so this is not at all ment sarcastically at _you_, for once. Now, what to disagree on... er, I might need to find somebody else to disagree with. How annoying.
Anyway, this leaves the minor problem of getting the entire body of voters to get through their generally thick, preoccupied, and probably prejudiced skulls that jam today isn't what they should want. The obvious place to start is the schooling system, which is currently just as unhelpful as the media or generally the rest of the world. Is it?
Also, would it be reasonable to up the price of entrance to voting? And if so, how does one stop, prevent, or sidestep the almost inevitable (qv history, north american south) associated abuse?
And of course
It was Mandy Rice-Davis, not Christine Keeler.
Naughty Timmy, fact check before filing, not after....
Three words: "Reality distortion field".
It's been shown that the value of companies decided by "the markets" has little to do with long or even short term profitability, but about rumour propagation and groupthink.
I would posit that Apple have such a high valuation because their customers - the market Apple are targeting specifically - includes exactly those kind of people who directly affect "the market". So they see the shiny, they fall into the reality distortion field, and end up worshipping at the altar of Jobs.
I would posit that Microsoft have such a LOW valuation, because there are now more than 50 billion Microsoft shares, in existence.
Ten shares for every human being alive; and each year, they dilute the stock even more.
Stop thinking about the companies and start looking at the stock. MSFT stock is worth much less because it is so common - and so each share represents a vastly smaller portion of the total pot. It's not complicated: a fifty pound note is a piece of paper, just like a five pound note is a piece of paper, but it's worth ten times as much because of what it represents... not because of the paper.
In pure capitalism terms, MSFT stock is probably still over valued by at least several orders of magnitude.
You misrepresent the critics of the anglo saxon variant of capitalism and rely on anecdotal evidence (a single company) to make your point.
In most public companies, shareholders exert very little influence, the shareholders are overwhelmingly large, staid, institutional investors - pension funds, life insurers, etc. Those who have control are the senior execs who will in all likelihood stay only for a few years and so obviously want to maximise performance in that period. The people making the investment decisions in the pension funds have similar short term incentives.
People like WIll Hutton are not arguing against shareholders (and venture capitalists take equity, they are active shareholders with long term interests), they are arguing against lending through bond markets rather than through banks, where the lending institution makes the loan, packages it up and sells it on. Securitisation means those making the loans have no incentive to think long term - they only need to be sure they have a market for the debt.
Apple and Microsoft were both driven by founders with long term interests in their companies who are able to think past the next quarterly earnings statement.
The 'Californian' (venture capital) and 'German' (long term bank loan) models of capitalism have produced a huge amount of value and growth through innovation. The 'New York/London' model of financial capitalism has enriched bankers and has brought nations to the brink of bankruptcy. These people create little value, but are very good at redistributing it into their own pockets.
Christine Keeler didn't say that...
...Mandy Rice-Davies did. But I know what you mean.
The value of Apple's stock is not detrmined by a single decision; it's a reflection of an aggregate set of deals each with a set of differing motivations. You could argue that a load of short-term dealers are buying now in the hope to capitalise of hype built by the year of the iPad and iPhone 4, and the establishment of iOS. They'll cash in over the next four months or so, as perhaps they don't believe that consumer electronics is a long term profitable sector to be in (You wanna swap your mircosoft shares for my Sony ones?). So I don't disagree with your points (bar one, see below) but I'd argue that the picture is a bit more subtle than you make out here, and perhaps that undermines your point about markets taking a great view of the longer term prospects of a company.
The big disagreement I have with you is that it was Mandy Rice-Davis, not Christine Keeler, who said "well, he would say that, wouldn't he?"
Maybe this is why?
Apple stock is worth more because it is growing, entering new markets and succeeding. Microsoft simply can't as it has no new products that generate the amount of cash that Windows and Office do.
XBox 360 has cost them a lot of money in repairs and warranty claims. Zune never took off and Bing cost lots of money and isn't grabbing much market share.
RE: Maybe this is why?
The words "you've hit the nail on the head" spring to mind.
Don't forget to mention that Windows and Office now have free replacements which in many ways are superior...
"It depends, in fact, upon the incentives being faced by those politicians and market participants."
And that's why politicians should focus on ensuring the carrots and sticks in place are sensible. Get them wrong and the gameplay that emerges from the rulebook will not be the one they intended.
(Most of government and regulation today is fundamentally a process of designing interfaces between complex systems. Humans are complex systems too, so the science behind UX / UI design and implementation should, in theory, apply just as well to law.)
The system is indeed broken, time to become self sufficient and a pirate me thinks! ahast me mateys! Anyhow, spiffing article.
Follow the cash
There is a small difference.
The Government bribes the public sector (eg, Blair and Broon's 2m useless white collar jobs) with our money. The private sector doesn't.
Or perhaps this is
yet another bubble that is bound to burst?
Iphone 1 was revolutionary but after that they really werent THAT innovative and the Ipad well lets see what happens with that... One thing is for sure working for Apple is a wet dream come through for PR people... hyping up products... Manufacturing supply shortages, bringing out "superior" kit that has as many bugs as a Windows beta... Yeah sure long terms looks grand!
Slate me all you want Jobculters i dont care one iotta this is MY opion and i totally admit i dont like apple
Paris because even she is starting to realize that Apple is becoming a bubble with its over hyped and prized superbly STYLED (yes fanbois i admit they know how to style their kit) and as we all know bubbles tend to burst.
RE: Or perhaps this is
"...kit that has as many bugs as a Windows beta..."
Umm. Have you used any non-beta version of Windows? Vista maybe? What about XP prior to service packs? Most of their software is fucking shit and frankly, the less I have to use it the better.
Now, maybe the rest of the world has similar opinions to mine and that's why MS isn't number one any more...? I feel that it is *their* bubble which has burst (and about time too!)
"This isn't to say that the markets are right in these valuations, but to point out that they can only be explained by people being long term in their estimations of these values...."
That is the ONLY explanation? Wow. And here I was thinking that it could be a bubble, or that people could be buying because they are fanboys, or because they hope it will go up in the next month (and it likely will)... Good to know that the market always acts rational!
Beware of people who say there is only one explanation for anything in the stock market...
Long way around the point
It may be my lack of education but this article, whilst correct, takes the long way around to get to a mediocre conclusion.
Apples (and Googles) share/stock value is high because it's delivering profitable products that the consumers, developers and retailers love. MS on the other hand is still pushing out the same old thing and their innovations and products are behind the trend, which will only get worse. The funnt thing though is that they have, in my opinion only just started to get their product ethos right and the quality of Win7 and Server2008 are superb.
MS really only have a couple of years to have a huge board change, bring in new blood, focus on their market segments and give them innovation, security and inevitably partial but progressive open source. Unless this happens it will be a slow IBM 80's like decline this decade by which time their cash reserves will be short for innovation.
It's fustrating really, having been an MS supporter for 15 years of my career I can see their demise playing out every day, however as the article points out they have a good set of books and high profitibility, it's not going to last though.
will soon be yesterdays jam
Apple proves nothing
Sorry, but I think it's yet again a case of short-term vision. Apple's valuation is way overblown, even if its long-term prospects are really as good as you seem to claim (of which I am seriously doubtful). It's just a case of what happened to Microsoft in the 90's all over again... and it will end the same way.
Is this an el reg article? Reads more like The Economist ( which is a good thing).
Well written and thought out. Kudos to whomever commissioned it.
It's been mentioned in other articles he's written that the author works at the Adam Smith Institute.
Who seem to be on something of a publicity bender, at the moment. The latest issue of my college magazine came with a fawning recap of a lecture given by Henry Kissinger, written by the director of said Institute. Nearly made me vomit in my cornflakes.
I'm amazed at how quickly so many sages in 'free market' apologist organizations like the ASI have gone back to patronizingly informing us of how economics _really_ work and how we don't understand anything and should just go back to making more money for senior management, scant months after they proved to us how spectacularly they cocked up the last two decades...
Nice article, and I perfectly agree with the conclusion.
Unfortunately, as an underling, I can try all I want to make a difference and vote and proselytize for the Right Choice, all the other nincompoops who think Me! Now! relentlessly undermine my efforts to the point of futility.
I would move for a right to vote for people who actually understand the issues in the first place - but apparently keeping the ignorant and easily manipulated away from the voting booth is a form of fascism.
we are seeing the usual short term blinkered thinking in the markets the author wishes to dress up as long term thinking
1. It was Mandy Rice-Davies what said it, not Christine Keeler.
2. It is possible that the people who are valuing Apple so highly are looking to the long term. They might also be herding.
3. No, it is not the fault of all of us. Since when did I control the investment decisions of my superannuation fund or insurance company? What practical control do I have over the relations between electoral politics and financial decisions in American State governments. Yet these affect my life. Sorry dude, personal responsibility on our part is not the answer to bad investment decisions by professionals.
Moral of this
So you got to have a moral outlook as you both invest or buy, is that what your saying?
Or is it that all things from man turn but to dust, thus a moral outlook can be our only validation?
Or was it morals be damned show me the trough so I can put my head in it?
I'm not too sure what Apple's success has to do with politician's strategies and policemen retiring at 50, and think the author has completely missed the mark. The success of Apple, like it or not, has always been with Steve Jobs and marketing. I never saw what was so special about an iPod or an iPhone, but as we all know people love them, and associate the Apple brand with stuff they'd like to buy more of. Apple is seen as fast, flashy, creative, whatever.
Microsoft is still digging itself out from under the Vista fiasco, and Office 2007 with the Ribbon wasn't helping much. People have seen Microsoft for a long time as a company that tells you what to do, whether you like it or not. Apple makes people think they've been given some new thing they need, even if they could get it from somewhere else.
The biggest change in Apple, ever since the turnover to Intel processors, is how it's not really a computer company anymore but a digital media company. Microsoft's last big new venture that had any success was the Xbox, otherwise it's been the bread-n-butter of Windows and Office.
However Apple is tied too much to Steve Jobs; maybe I'm wrong and he's cultivated his replacements and is keeping up his keeper of the reigns persona for appearances, but it's hard not think that Apple will last only as long as he does.
The stock market is simply speculative
No long or short term outlook, only speculative. The Apple's stocks are appealant as well as the investors have their iPlodes, they buy one, are delighted and so take an other piece of stock. Does a bad upgrade affect the Apple's stock value ? That's a test.
But, when we heard that Saint Job could be retired or else, hell, what will be the Apple's future ? Don't know, don't care. It may be the good moment to sell my Apple's stock.
No long, no short term, just want to know (before the other) when the term will stop.
I'm not so sure.
I think you can take the same set of facts, and argue exactly the opposite position - the markets are over-valuing Apple because of a few high-profile releases of shiny consumer electronics, without thinking about the longer term implication of competition from Android, Chrome, and others.
Plus, I suspect some investors are rather greedily eyeing Apple's cash pile and expecting a big dividend payout at some stage in the future. Good luck with that one....
I think Apple stock is showing all the classic signs of an investment bubble currently. But then, I just bought BP shares, so what do I know? :-)
A slight extension of this?
Stock prices often change based on what a company's earnings are predicted to do - grow or shrink - compared to the current earnings.
MSFT's PEG is 1.4.
AAPL's PEG is 1.1.
The lower the PEG is, the better the expected return on investment is over time (since Growth is in the denominator of the PEG: http://www.investopedia.com/terms/p/pegratio.asp )
So, since AAPL has a lower PEG, it is considered likely to appreciate in stock price more than MSFT will.
The how's and why's of this are the more interesting part. You definitely cover this well in your article, but I would have thought that explaining a common investing term, since you're already touching on "market capitalization", would have been a pretty good direction for this to take.
In any case, thanks much for the article.
Stock value vs. real worth
Stock value is not what a company is worth. It's what a company is PERCEIVED to be worth by market wonks that couldn't tell a piece of CAT5 from their ass. This is why we have "technology stock" bubbles and "land investment" bubbles because all the idiots listen to each other and jump on the same bandwagon. They all whisper "ooooh! Linux companies will be worth billions!" and believe it.
This is why Apple is currently valued higher than Microsoft. People perceive MSFT as making crap no one wants (but is forced to use) and AAPL as making wonderful stuff they can't physically sell fast enough. Which would you think is likely to make more money?
Has nothing to do with long or short term investment.
Personally I hate Apple, but I hate Adobe worse. I hope Lord Steve uses the opportunity to make Adobe his personal bedroom-boy in a rubber suit, and violate them nightly with a one-button mouse.
the fault? Nawwww
,,,followed you until the last. I, as an underling, refuse to accept responsibility for makers of products I do not buy or destructive political agendas that were concealed at election time beneath carefully crafted appeals to the lowest common denominator.
I, and my cohorts, have been swindled and the growing gap between ourselves and those of whom you speak is de facto evidence of such.craven behavior. The greatest good for the greatest number sounds passe, but the greatest good for the fewest number at the expense of the greatest number fails not only the bumper-sticker test, but the long-term stability test as well. What's next? President or Prime Minister Berlusconi?
Apple exceeds all but Exxon because Steve Jobs has perfected the appeal to the ignorant affluent - with dizzying profit-margins resulting. That's all the short term "investors" care about and as we know, it is they, who trade at the margin, that determine the price for all others,
OK, this is a little tough to follow.
There's a lot of press right now about Apple particularly with respect to Microsoft.
Apple (AAPL) is testing all-time highs again this week on news they may have to charge more for their stuff to prevent fans from rioting in their stores. They keep breaking into new markets with products that capture the high-end, high-margin products, or dominate totally. The only uncertainty in their gross sales and net profits is how fast they can manufacture products. That all the products they manufacture will sell at whatever price they offer them is a given. They can continue to innovate as they haven't entered into restrictive agreements with their software vendor because (gasp!) they are their own software vendor.
Apple's core products are gaining market share every quarter - and the high margin high end of the market. Even in the recession people seem willing to pay full price for quality. Where they really stand out is mobile where their smartphone offerrings are growing both in units and share at a rate that have caused both higher-share vendors RIM and Nokia to miss their targets. Anecdotal evidence has the true value of their iPhone 4 product somewhere between $1600 (eBay price) and $2000 (widely reported convenience price). In its first day of release the iPhone 4 is believed to have sold 1.5 million units despite numerous difficulties caused by overwhelming demand. Preorders were 600,000 in one day sight unseen. They've created a new ARM tablet category that's sold 3 million units in 80 days and looks to be accelerating - an unprecedented victory for a first gen unit and amazing against a 15 year history of tablet failure. Though Android tablets have announced over and over no similars are launching before the holiday gift buying season. Apple caught their competition flat-footed here and look to have a full year of first-mover advantage. Traditional OEMs started their replies with Windows 7 tablets on Intel Atom CPUs but had to respin because this mix gave a poor experience and was not competitive. Since then Dell has adopted Android and HP has puchased Palm for their WebOS - both major defections from the Windows camp, and products are expected next year but there are questions about component availability because Apple is believed to have optioned the entire world's supply of displays.
In media products Apple continues to excel, selling more iPod devices than all other media players put together, tightly integrated with their iTunes store which offers a more diverse and complete media selection than all of their competitors combined. They make good margin on every unit shipped as well as profits on all media purchased.
By consistently delivering outstanding products in fields outside their core business Apple has built up a reasonable expectation in the consumer that no matter what new field they choose to enter, the result will be outstanding and durable. This enables Apple to enter new markets with an ease that competitors desire.
Apple has been a growth company since mid-April 2003, the stock having gained 40 times its price in that time.
Friday in after-hours trading Microsoft (MSFT) hit $24.41 per share - bottom of 10 months and only $.41 over the most pessimistic analyst's downside target. So Microsoft's stock (MSFT) is trading outside and below the range projected by 30 of 31 professional analysts. The mean projection of the analysts is $36, or 1.5 times the current price, and the most optimistic has an upper projection of $40. The big news this week is that Microsoft's Windows 7 is moving well but this is figured into the stock price and will be adjusted when real quarterly financials are announced soon. W7 is known to be a passable product that will gain adoption. Whether it's adopted or not it will sell well because consumers of volume OEM PCs have no choice but take the license with their PC and most enterprise customers are on Software Assurance and so were licensed on release day. Because of the way the market for Windows is structured to determine how "popular" this product is we'll need to rely on web access numbers because licensing numbers are meaningless: If a PC is purchased from a major OEM other than Apple, it comes with a Windows 7 license even if it doesn't come with Windows 7 - even if it can't run Windows 7 at all.
Microsoft releases new versions of their profitable products (Windows, Office and Exchange) on a regular cycle and get the usual annoucements about licensing. Vista, their recently rejected OS revision was also said to be widely licensed despite its rejection by the market. There's a new version of Office as well, and it's expected to be widely adopted as is the usual course. The expectectation is that this will continue to occur on a regular schedule for the rest of time and the company's pronouncements on volume licensed bear no weight because these numbers have nothing to do with actual usage of the products and cannot bear on their popularity.
Outside of their bread-and-butter businesses Microsoft has found a remarkably diverse assemblage of failures to dissipate their immense profits. Their search effort Bing is falling in share this week on news they have discontinued the cashback mechanism where purchasers of web advertising encourage their customers to pretend to use Bing to find their products in return for a cash refund from Bing. Gaming with XBox is finally profitable these past two quarters, but not at a level that has any prospect of winning back the billions sunk into buying market share with products that need to be returned at such an alarming rate. Natal, a motion sensing input using cameras is getting a lot of press but will not bring profits as the company is discounting it as a loss leader to gain acceptance.
Microsoft's biggest failure at the current time is also what's seen as the revolution that drives technology forward. The Windows Phone 7 mobile OS promised in January 2009 is still not shipped and doesn't look likely to ship in a form that will find traction with customers this year. Notable missing features include multitasking, copy and paste, compass. Although Microsoft funded an IDC study predicting 30 million units shipped by the end of 2011, this number is looking incredibly optimistic and has been roundly dismissed by the technology community. Developers are seen reluctant to waste time on this distraction so Microsoft is subsidizing some developers to produce games.
The most recent product launch - the Microsoft Kin One and Kin Two - are a pair of phones with limited features. These phones are an evolution of the SideKick purchased last year when Microsoft acquired Danger. Despite a months-long data loss debacle at the end of last year Microsoft continues to evolve this line because it leverages their "cloud" efforts which are seen as a way forward. The phones, formerly known under the codename "pink" lacked a number of critical features on launch including the ability to "retweet" and without an Instant Messaging client which is contrary to the positioning as a "social" phone for teens. Despite the shortcomings Microsoft's marketing department chose to advertise these phones as a forerunner to their new mobile effort, Windows Phone 7: "Microsoft said that the underlying fundamentals of Kin and Windows Phone 7 will be held together by similar core technologies. Both Kin and Windows Phone 7 run the same Silverlight platform. Microsoft has stated that over the long-term, Windows Phone 7 would be merged with Kin." Also critical was Microsoft's partner Verizon's insistence on a full smartphone data plan for the phone in addition to regular cellular charges which drove monthly service charges to $70 - quite high for the target teen market. Despite heavy advertising on the web, magazines, billboards and television spots sales are not going well. Two months after release there are rumors the two phones have sold 500 units total - amazing in that that's less than one per Verizon outlet carrying the things. Countering the rumor is that the Kin has 200,000 easily-bought friends on Facebook. Supporting it is that on Amazon.com the Kin One has one rather poorly rated review after two months on release, and the Kin Two has none. If the Kins are a forerunner for Windows Phone 7 the outlook is not good.
In media products Microsoft has tried time and again with Plays For Sure and Zune as notable cash sinks with no appreciable user base and no hope of turning a profit. Zune and the Zune Pass media outlet are losing money in the faint hope of achieving interesting market share.
By failing in the market over and over Microsoft has built the expectation that the new things they try will be poor and forgotten quickly. This causes reluctance with new adopters of their products and friction against success in new markets, despite their considerable desktop software advantage.
Microsoft has generally been in decline since January of 2000 when Steve Ballmer was made CEO, and has lost 35% of its market cap since then despite immense monthly profits. The company has declared some dividends but not enough to make ownership of the stock cash-positive since then.
Considering only the two companies' market cap with respect to each other Apple is clearly in ascent, Microsoft is clearly in decline and no change is expected.
Considering Microsoft and hardware partners as a group it appears that Microsoft is losing the control of partners they had enjoyed. Hardware partners want to survive and Apple is looking like a serious competitor in hardware that will drive them out of business if they do not create and deliver satisfaction from their customers. Placed on the horns of this dilemma Dell and HP seem to be choosing to compete, ASUS and Acer not so much.
MS will see a brief bump next week as they're oversold short-term, but the long term fundamentals are clear and they don't win.
Disclaimer: I don't own, sell, or work for any of these.
"Apple has built up a reasonable expectation in the consumer that no matter what new field they choose to enter, the result will be outstanding and durable"
I agree except for the "reasonable" part. Apple does indeed enjoy this reputation, but it is in the face of all experience that their products (computers included) are fragile to the point of disposableness, each generation of hardware just barely able to survive normal usage long enough for the next generation to come out.
Obviously, this has a very positive effect on cash-flow for as long as the consumers don't catch on but ultimately it will lead to trouble as fashions change and people are less frantic to stay up with the cutting edge as defined by Apple.
This had to do with Apple?
I fail to see why a purely poltical piece written by a neoliberal fanboi gets a place at Reg by dressing it up with some desultary references to Apple. The next time (at some time in the next few decades) I feel in the mood to treat myself to some rightwing politcal howling I'll logg on to one of the blogs at the Telegraph or the Mail.
The analysis fails to understand that ...
1 - even in finance sector there are fads and fashions. The Apple is a present fad and it is a present fashion
2 - the Apple has increased its product portfolio and in doing so did it in a way that wowed the world (component providers, financiers, customers, the tech procurement sector) and used a model that was wholly the Apple
3 - that the finance sector (investors in particular) like winners but they also like to switch funds about as that too is a nice little earner (so if there is only one leader = not good! If there are various parties competing and promising = good! Chance to switch investment portfolio a bit)
fad or feature?
Apple realised that in consumer electronics, UI and presentation is a feature. They used their experience with MacOS industrial design and applied it to consumer electronics.
It isn't a question of style over substance, more that the substance requirements of a smartphone are quite small and before Apple, the UIs were rubbish. The style (UI) is the substance. You don't have to do much feature-wise, but if you do it much better than everyone else then you can do well in that market. People didn't know it, but they were crying out for a phone with a decent interface.
The question, of course, is whether Apple can survive in the long-term with their current product line or if their margins will be eaten by Andrroid, Meego et al. Currently these products lack the Apple polish, but the gap is narrowing. It is possible that Apple will have to find another market segment to apply their design/UI expertise to in order to remain profitable. We've seen them try the ipad. It is quite possible that previous tablet attempts failed because the format doesn't lend itself to a "normal" computer UI. Perhaps the iphone interface will make the format work.
After that, who knows? What other devices are there which could be improved? That may be Apple's problem.
Personally I'd like to see more done with the mac mini. It needs more disks, more sound outputs (for tv, for music, for voip/phone ringing), more nics (so moving an iso doesn't kill my media streaming/voip).
AAPL's PE ratio is 26.22 as I type ...
Twenty six and a quarter years of earnings to buy all outstanding stock? And that's WITHOUT any R&D over that twenty six and a quarter years. Or dividends, for that matter ...
Doesn't seem like a good investment to me ...
Ends with a tad of hypocrisy. You fail to consider that a few isolated examples do not a generalisation disprove.
And generally, 'greedy investors' are v short term. As you rightly point out, there are exceptions.
But if apple has a BP moment (major safety issue) you just watch people decide that they would rather think about what the share price will do tomorrow than what it will do next year! Indeed, volatility is the major investor's friend. They LOVE it! Major investors moving their money from long to short makes a self-fulfilling prophesy, price plummets, they can buy back later as/when profiting on both sides of the cycle.
The markets are only as long-term as the latest news.
Nay to the naysayers
No matter what Apple is launching, it's always the same, the naysayers come out in droves to predict the failure of the newly released product. And they're out in droves again - just look through the comments, "Apple is about to fail". I say, "Nay!"
Just because you want something doesn't mean that alone will make it happen.
The flaw in the argument...
.. is that is assumes that the market always gets it right, which we all know it often doesn't. Bubbles and crashes are, after all, quite well documented.
its not a flaw as it is not relevant
The article made no claim over how 'right' markets but about how long or short term they are in their thinking.
Don't sell just yet...
...wait for Apple to announce the iTulip!
This article reminded me of this Cringely article from 10 years ago re: Palm and 3Com insane valuations.
Here's a relevant paragraph:
"Here is 3Com's apparent problem. Palm Inc. went public on March 2, priced at $38 per share. Following the recent trend of hot IPOs with relatively small numbers of available shares, Palm stock soared on speculative fever and day trading before dropping back below the offering price by April 4 on bad earnings news. Even then, Palm's market capitalization was $21.1 billion to 3Com's $15.8 billion. These numbers make no sense at all, given the fact that 3Com owns more than 95 percent of Palm. Ninety-five point nine percent of $21.1 billion is just over $20 billion, suggesting the perfectly efficient market believes the non-Palm parts of 3Com representing $5.5 billion in sales and hundreds of millions in profit were worth a negative $4.245 billion. That's an implied Price-to-Earnings ratio of about minus 9."
I'm sure that an economist can explain it away with some of their magical-thinking... ahem - sorry "science"
It's almost as though the market/prices were set by by irrational/non-logical beings who often made odd (stupid?) decisions and exhibited "follow the herd" behaviour.
Nice article, but I'm not sure what any of this has to do with Apple. You could equally argue the investors are being short-termist in investing in the company with the shiniest gizmos now, but which could also have nasty anti-trust actions happening against it in the longer term.
er, yes that's all very good fun but why is it my fault?
Despite all of your wisdom you still conclude that it's all our fault?
It's about growth not absolute value. Investment x growth = profit, if I invest 1 million each into two companies the one that grows the most will make me the most profit, what the two companies are worth is irrelevant. That's where Apple has scored.
trying to justify financiers' silly decisions...
... by saying not only that they are rational after all, but also that they are our fault?
good luck trying on both accounts. bubbles have proved over and over the irrationality of the "market".
trying to put the blame for failures on the hapless victims of the various frauds/errors/greed-driven-risky-decisions under the usual pretense that the financial products are "public" (ie can be purchased by anyone) doesn't work anymore. anyone can buy shares, but the controls is held by very few, and we know it.
this is yet another attempt to try and have us forget that the world's wealth is more and more concentrated into a few people's hands and mostly into too-big-to-fail corporations whose myopia and self-interest are absolutely destructive.
economics theorists flee reality checks
>But in order to test this idea we actually need to, er, test it against the real world. A useful (if far too infrequently done in economics) part of the scientific ideal is: does our theory actually accord with reality?
Well, this is actually actively avoided in the real world, in order to give no wiggling room for hard-core beliefs.
Who knows how Cuba would have developped without decades of embargo from its bully neighbour?