Didn’t some economist win the Nobel prize for explaining this? Was it Modigliani? It’s all beyond me.

When it comes to owners destroying companies though I suspect this is far less likely to happen to Apple (who had a near death experience already thanks to listening to speculator shills) than it is to Microsoft whose share price hasn’t moved in a decade, and whose profits are based on just two, decades-old technologies.

When a years supply of NAND chips costs $7 billion, and the rest of the computer is similarly expensive, you soon get through a pile of cash if an idea doesn’t pay off.

No claim on current profit, no claim on retained earnings.

Is the hope that you find a sucker or sell before management does actually crater value?

This is a serious question. Buffet’s story of reinvested earnings making stocks better than bonds only works as long as management doesn’t destroy the firm before you realize your gain. It also is based on the idea that the earnings would be invested in more productive ventures than stockholders could find. If it’s just going into tbills again it makes no sense.

AAPL’s price shows the flaws in the idea of the stock market and corporations more than it reflects anything about AAPL itself.

The iPod, iPad, and iPhone were all groundbreaking products that were way ahead of anything being produced by their competitors at the time. However, these days, Apple looks more like Microsoft…just releasing updated versions of its flagship products. They have no new groundbreaking products in the pipeline, and Samsung has caught up to them, and is now churning out products with similar functionality at a fraction of the price.

Here in China, for example, Samsung products have become much more popular than Apple, something that wasn’t the case as recently as eighteen months ago.

Apple needs to come up with another groundbreaking product if it wants to keep growing….it’s been almost six years since the first iPhone was released, and almost three years since the first iPad was released. Apple can’t live off them forever.

It’s called brainpower. It’s got nothing to do with theology.

But maybe you’re right when you make a theological pronouncement like, “But you can’t time an individual stock like that: no one can. Especially when there was nothing — no thing — which caused the stock to fall.”

I guess the rest of us will have to continue to invest based on information, as the theology of AAPL you espouse is just beyond us.

No less, the company trades at a significant discount to cross-industry ‘gold standard’ companies like Walmart, Coca Cola, Nike, Southwest or Procter & Gamble.

Finally, Apple is exceedingly transparent with analysts and investors in breaking out its sources of revenue, cost structures, channels, etc., in stark contrast to its competitors.

Apple **should** ignore its investors ala the Jeff Bezos approach, as all of their attempts at transparency have only bitten them in the butt, something that I wrote about here:

Cry Babies: The Strange, Confusing Path of the Apple Investor
http://thenetworkgarden.blogs.com/weblog  /2013/01/cry-babies-the-strange-confusi ng-path-of-the-apple-investor.html

Check it out, if interested.

This is the most cogent reminder I’ve seen in months that whatever else financial engineering might do, it depends on a solid engine of (in Apple’s case) engineering, design, production and marketing.

This is the most cogent reminder I’ve seen in months that whatever else financial engineering might do, it depends on a solid engine of (in Apple’s case) engineering, design, production and marketing.

To paraphrase that saying “Those who can, invest, those who cannot, analyse”. Whether it be S&P and others missing the weakness in the US sub-prime debacle, or tech analysts missing the point about the Apple philosophy, it all points to their opinions being amazingly over-valued. Just because you can do sums doesn’t mean you know which things to add up!

Capital allocation? That is what shareholders hire management to do. That is a core function. They decide whether to retain earnings for investment or pay dividends. Apple (after investing back in the business) is buying T-bills with their retained earnings. After a long while of this, it is perfectly rational for shareholders to wonder whether investing in near zero yielding governmet bonds is such a great thing…

If you own a hot dog stand that has become very successful due in large part to a great operator you’ve hired, you might tell him to invest in the business as he see’s fit, but to kick back anything beyond that. It doesn’t do much good sitting in the till.

My thoughts on expansion are:
TV – this could be Apple branded flat-panels, or a beefed up AppleTV box. This might even involve a merger of purchase of content. Or it could be a google-like fiber/wireless roll out so that users of AppleTV* (* denotes my imaginary product) could completely cut ties with cable/DSL and have Apple provide the bandwidth.

Software – an expansion of their OS, and possibly a spin-off/investment in Office-alternatives. Office has no real competition – OpenOffice on Linux and GoogleDocs are not viable options yet. There is huge profit in this, as well as a desire to see some better engineered software in that space.

In retrospect, the move from the iPod to the iPhone was natural. You had phone makers trying to shoe-horn a music box into their products, when it was more natural for Apple to bring phone functions into their iPod. I don’t see another transition like that, or a market as strong and vibrant as the one for cellular handsets.

I bought AAPL on the dip. They have a massive, talented, engineering team, and is still an attractive place to work (at least from the outside). The sell sign will come from a huge misstep, and it should be fairly apparent if it happens.

But since even a modicum of dispassionate research shows us that Apple is still growing quite handily, then really, the whole flap over what Apple should do with its cash pile is, to paraphrase the Bard, much ado about not much. Since we can make a rough determination that, first appearances to the contrary, Apple grew somewhere between 25-30% last quarter, once the extra week last year is removed from the equation, then that makes a nice anchor point for anyone serious about trying to estimate just how much Apple might grow this fiscal year. And yes, I know that Apple gave an earnings estimate for the present quarter that is far below that base number, but what’s new? Apple has often over-performed its estimates, and at times by very large amounts.

Now, I’m not saying that I know Apple is going to grow 25-30% in fy 2013. What I’m saying is that there’s a good chance that they will, based on last quarter’s real growth figure. And if it turns out that Apple does grow that much in fy 2013, then anyone salting away Apple right now, or refusing to sell it, is going to be the person who looks like a genius come next year. And I am also saying that I agree with the author that it really doesn’t matter a hill of beans what I or anyone thinks. In the long run, what matters is what Apple does. Will ye, nil ye, AAPL will follow Apple, not the other way around.