Apple BDSM - $AAPL

For the purposes of this blog posting, BDSM refers to Bondage, Dominance, Sales and Marketing. 

The sub-text relates to 500 shades of greenback (dollars per share); delivering a market cap of about $450 billion to the largest, and most successful product, sales and marketing company on the planet, ever!

But there, I said it.  Apple $AAPL is a product company, despite Tim Cook’s desire to reposition Apple as a tech company.  This, mainly because its in-house, closed-shop, non-sharing technology development, is limited to a vertical integration strategy focused entirely on making Apple products work.  In other words, Apple engineers write code for their own products.

In fact, I’d go one step further – agreeing with Robert Frank of CNBC – that Apple is not only NOT a tech company, but actually a luxury brand.  However, I disagree with Frank's statement that “Apple has become a luxury brand first and a technology company second.”

Apple may well have become a luxury brand first, but it is a product company second and a technology company third.  The hiring of Burberry CEO Angela Ahrendts lends some credence to the luxury brand hypothesis. But the word brand, by definition, defines the entire corporation, rather than its products only.

As an investor, I have held positions in Apple stock.  Buying dips and selling for gains.  I mostly used trailing stops to exit my positions automatically – for a profit – every time Apple’s stock took a bit of a nose-dive.

As an investor, I also continuously look to manage emotion, avoiding non-logical attachment to any equity, as best as I am able to.  So, let’s take an objective look at Apple, from a ROI point of view:

Bondage

Apple successfully holds the hearts, minds and body parts (fingers, eye, ears, etc.) of its clients in bondage. 

This tying up of clients is further complemented by a coolness factor that competitors could only aspire to having and/or achieving.  Moreover, Apple has a variety of subscription-based, recurring revenue streams that greatly benefit the corporation, in terms of ongoing sales, and continuous cash-flow.

But, how have Apple investors fared this year, holding onto their much beloved Apple stock?  Let’s compare Apple to Google $GOOG, Microsoft $MSFT and Yahoo! $YHOO.  These elected for the purposes of a comparison, regardless of the fact they are not actually true competitors to Apple; only limited similarity and/or debatable overlap in products:

2013 YTD ROI (via Google finance; click to enlarge):

$AAPL -4% / $GOOG +42% / $YHOO +70% / $MSFT +29%

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Dominance

Despite Apple’s relatively poor stock performance - purely from a return on investment point of view - the company’s dominance is unrivaled.  Of course, Apple has achieved great dominance in the U.S. domestic market.  And, global competitors would be happy to swap, since – despite U.S. political disruption and a seemingly great desire by DC politicians to play a part in redefining the American Dream – the U.S. still represents about a third of the entire global GDP!

So, let’s instead compare Apple’s stock performance to the other 3 largest US corporations, by market cap:

(Note: $GOOG market cap is larger than $BRK.A and $WMT, but $GOOG is already included above)

$AAPL -4% / $XOM +1% / $BRK.A +30% / $WMT +10%

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I realize that by redefining S&M, I may offend some BDSM aficionados.  But, I should probably stick to something I know a little better... rather than going into new subject matter blindfolded!

Sales

I am not going to bore you with Apple’s numbers taken from their financial statements.  Especially some which you may already know, or have a very good idea about!  But, by way of summary, Apple reported sales of around $160 billion last year, with gross income around $68 billion and EBITDA of $58 billion.

In fact, as an illustration of the whale-sized performance highlighted above… if one were to rank U.S. publicly traded corporations by market cap, Apple’s sales performance (2012) exceeds the entire current market cap of 15th ranked Bank of America ($BAC)!  Or, Apple's EBITDA equals Yahoo's total market cap... x 2!

Regardless of whether Apple should be viewed as a value investment or growth stock, their financials are such that investors will be in a good place for many years to come, regardless of the stock price.  Throw in a dividend of around $3/share, and it looks like a good value investment at the current price.

Many analysts have price targets ranging from $550-$650.  Remember, that with the stock trading at $500, that’s a projected upside of 10-30%.  And the stock is still relatively ‘cheap’ at $500 – don’t let the high sticker price fool you!

Can you better 10-30% ROI?  The real answer is... quite easily... but also by accepting more risk than parking some cash in Apple stock.

Marketing

Unfortunately, we lost one of the greatest marketers ever, with the passing of Steve Jobs.  Let’s face it, any company would have been negatively impacted by losing its visionary, one of its founders, and the person seen as the face and voice of the corporation.  Steve Jobs was Apple!

Subjectively, I’d add that Tim Cook simply cannot pull off the yuppie/hippy/trendy look of blue jeans and a black turtle-neck sweater, like Jobs had done before him.  Actually, I would prefer Tim Cook dressed in a suit and tie… i.e. I might take him more seriously if he were to dress like the CEO of the largest corporation on the planet.  But, I accept, that’s probably just me!

The good news for Apple is that once you achieve mind and thought leadership, added to dollops of coolness... marketing may become a self-fulfilling prophecy.  The products already represent the world's most recognizable brand; best products regardless of performance and/or deficiency; uber-cool to be seen with as accessories, etc.

Apple has achieved the above successfully, regardless of any possible counter-opinion.

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Apple as an investment?  I’m watching from the sidelines for now.  My equity investment portfolio, collectively, has comfortably outperformed $AAPL on a YTD basis, although it had included a position in Apple earlier this year. 

When the time to buy $AAPL presents again, I am likely to be tempted to get back in.  For now, I wish longs the best of success in achieving a stock price with a 6 (or even a 7) as the first number of the $AAPL stock sticker price, as soon as possible, in the very near future!

Disclosure: no positions in the stocks mentioned in this article

The McDonald's Syndrome $MCD

First off, let me be clear… there is no such thing as “The McDonald’s Syndrome.”

Well, not officially anyway.  I made it up.

It will not form part of a formal Psychology curriculum, nor will it be mentioned in Industrial Psychology 101.  But it exists, and I’ll explain.  McDonald’s ($MCD) is used as my preferred example for illustrative purposes only.  I enjoy an occasional Big Mac as much as the next guy… unless the next guy is a Sumo wrestler!

Everyone is in sales… somehow, somewhere. 

Selling – or trying to sell – their services to the highest bidder.  In capitalist countries this is commonly referred to as employment.  You may be employed full-time, unemployed, or even working part-time at McDonald’s, say for $10/hour.  The latter refers to the price you have agreed to value your time, skills and services at.

By definition, if you are unemployed by choice, you haven’t attached any value to your time, skills and services.

On the other hand, if you are unemployed due to unforeseen, near-term circumstances beyond your control – e.g. because you lost your job – you likely have a perceived price for your services, that you will eventually pitch to a future, prospective employer.

If you happen to be unemployed due to e.g. illness and/or disability, then my definitions above don’t apply.  For you may be challenged and/or unable to sell your services to a willing buyer, preventing you from realizing your worth, strictly speaking, in monetary terms.  Of course you are very capable of adding value, loving, and sharing happiness in other ways! 

With the disclaimers out of the way, let’s get to the heart of the matter.

So, let's pretend someone works at McDonald’s earning $10/hour.  They may – as evolving humans are inclined to do – strive to improve their financial standing and/or working conditions, by transferring their skills to another, similar employer… for a slightly higher price. 

Therefore, a skilled McDonald’s employee may change jobs to join Starbucks ($SBUX), e.g. for $12/hour + benefits.  That is an example of “The McDonald’s Syndrome.”

Skilled, white collar managers are subject to the same psychological quagmire.  The bid/ask price may be different because their unique management skills are subject to a different supply/demand curve.  For example, a McDonald’s corporate employee working in the marketing department for $60,000 in annualized compensation, may aspire to joining the marketing team at Home Depot ($HD) for $70,000 in annualized compensation.

Similarly, the CEO of a large corporation [consider the recent news of Burberry (LON:$BRBY) CEO Angela Ahrendts joining Apple ($AAPL)] may leave one corporation for another large corporation, perhaps citing better career prospects, a new challenge, more responsibility, etc.  In reality, “The McDonald’s Syndrome” caused them to move from one position to another, agreeing to sell their services to the new employer, for a slightly higher price.  In the instance of the example immediately above, that slightly higher price may actually be a difference of several million dollars!

My point is as follows:

Imagine asking a typical McDonald’s employee the question, “What do you think your next job will be, after working here?”  Perhaps they don’t know; haven’t thought it through before; or it may be possible that they are simply happy and/or delighted with where they are at presently, and with what they’re currently doing daily.  Perhaps, they’re just happy to have any job!

I’m confident that no McDonald’s employees would reply with something like “when I leave this job I plan to manage a major bank,” or “in my next job I am going to open my own dentistry practice.”  It’s more likely that they would say something like “I’m thinking of joining Starbucks because they offer better pay, employee benefits and company stock.”  I don’t know this for sure, just an example, made up as well.

You see, for most people, we simply lack the ability to see beyond our current surroundings.   In fact, for most people, this means going to work every day, doing mostly the same stuff, and getting a regular paycheck.  Very few employees have the courage to either think beyond the immediateness of their current situation, often as a result of life, in general.

By life, in general, I’m referring to debt and other commitments.  Self-inflicted responsibilities, like kids who attend a local school in their preferred community, a home that was acquired for nesting, mortgage and car payments that prohibit employees from exploring wholesale change… because the perceived risks are simply too great.  Lethargy!

If you’re reading this post, the mathematical odds of you being stuck in “The McDonald’s Syndrome” has to be greater than 99%.  If you’re fortunate enough not to fit this description, just look up and know that the first person you see will fit this 99% demographic.

Why should you leave your McDonald’s to earn 10% more at Starbucks?  Is whatever you are currently getting paid, really what more than 1/3 of your adult life is valued at?  This is, after all, a defined measure of how/what you are currently valuing your time.

Maybe you have even convinced yourself that you are happy doing whatever it is that you do every day… and who knows, maybe you really are?

But, this story is not about the money you earn, or the wealth that you are creating for yourself and your family.

It is about life… and what you make of it.  You have this one chance at a very limited time on earth to do great things.  If you’re suffering from “The McDonald’s Syndrome,” perhaps today will be a starting point for you to decide what you can do to escape this trap?

There is an entire world of opportunity waiting for you, beyond your current surroundings!

Live large… do well, and find your happy place!

Disclosure: No positions

Trading The #CR And Debt Ceiling

Those who follow my blog will know by now that I don’t take investment losses kindly!

My investment methodology is quite simple:

(1) Uncover well managed, undervalued (well priced), publicly traded company stocks to buy, and

(2) Don’t lose money!

# 1 above is quite easy.  Finding good companies to invest in, during a bull market – as we have enjoyed over the past couple of years – is relatively simple. 

Most blue-chip stocks showed good gains.  For example, scanning the Dow (the index of 30 large stocks known as the Dow Jones), one will easily notice that as of today, the index has returned +17% YTD.  In theory then, one could have simply invested in this index of 30 quality equities, for a solid return of 17% booked this year.

Simple?

I sincerely hope that your mutual fund investments (in your 401k) outperformed the Dow?!

Managing # 2 above – not losing money – may prove a little trickier, especially when the politicians decide to wield extraordinary, unpredictable influence on market returns.  Let’s face it, some of our elected leaders can’t even read, speak or write their first language fluently, and yet we have to rely on them for economic reform and policy, and fiscal management!

Many of my previous posts cover technology tools, like trailing stops (a personal favorite), stop loss orders, managing emotion, controlling greed, etc.  However, I am very confident that any technology available to help you control investor emotion – and therefore the risk of investment loss – would be a good thing!

DO NOT rely entirely (or only) on a financial advisor to protect your assets and/or gains.  This simply isn’t a fair or reasonable expectation.  You’re likely just one of many clients that he/she has to manage; your investment account balance is probably more important to you than what it is to them; and they have already asked you to sign an agreement to acknowledge and agree that all investments carry the risk of loss… meaning that it’s not their fault if they lose your money!

I trade often; buying frequently, selling occasionally.  My typical cap on investment losses is pegged at 3%, but during high volatility – like a government shutdown and debt ceiling debate – I may move to 5% or greater.

I took some hits commensurate with my sell orders on $ABBV, $BA, $CRM and $V.  Although I lost money on these four positions, they’re all good stocks, and I’ll buy them back in a dip… once the respective wash sale periods (30 days) have lapsed.

However, other long positions in my trading account are all in the money.  And I can’t lose because my gains exceed my stop-loss prices (i.e. the prices that they would sell for – if they do – are all greater than my respective purchase prices). 

Simply put, by way of an example… if I am now up 5% on $BLK and have a 3% stop-loss sell order plugged in; I will generate a 2% gain if I were e.g. to sell tomorrow.  Not bad for a 5-day position!  Are you making 1-2% every single trading week?

Other longs include $ACN, $AMTD, $BP, $C, $CLB, $FB, $GE, $HD, $PFE, $QCOM and $WFC. 

By combining methodology numbers 1 & 2 above, I try to achieve a 1% return every trading day.  That’s my target.  It’s a very lofty goal, causing me to fall short every year by a long way…  However, I manage to outperform a typical mutual fund manager easily on annual returns/gains booked. 

You can too, it’s not rocket science.  An hour a day may be too much, just check in regularly!

Disclosure: all positions as described above

Who Is Jamie Dimon?

James “Jamie” Dimon is Chairman, President and CEO of JPMorgan Chase ($JPM), one of the four largest banks in the U.S.  (The ‘other three’:  Bank of America, Wells Fargo & Citigroup).

He was born to Theodore and Themis Dimon in New York City on March 13, 1956.  His paternal grandfather was a Greek immigrant; also a banker, from Athens.  Dimon has a fraternal twin brother, Ted.

He majored in Psychology and Economics at Tufts University.  He then worked in management consulting for a couple of years, before enrolling at Harvard Business School for an MBA (awarded 1982).  During Harvard summer vacations he worked at Goldman Sachs.  After graduating, he joined Sandy Weill as an assistant at American Express ($AXP).  Dimon's father, Theodore, was an executive vice president at American Express at the time.

Weill left American Express for Commercial Credit in 1985.  Dimon followed and was appointed as CFO.  During a series of M&A transactions around 1998, Dimon and Weill succeeded in forming the largest financial services conglomerate internationally, today known as Citigroup.  However, Weill ended up firing Dimon in November 1998 (Kellogg School of Management interviews, 2006).

In March 2000, Dimon was appointed as CEO of Bank One, the nation's fifth largest bank. When JPMorgan Chase acquired Bank One in July 2004, Dimon became president and chief operating officer of the combined company.

The Wall Street Journal reports:

“Buffett… personally owns shares of J.P. Morgan and applauded Dimon’s shares ideas on capital management.  And today, Alan Schwartz, the executive chairman of Guggenheim Partners and the man who handed Bear Stearns over to Dimon in that seminal deal, praised Dimon’s integrity.  Speaking on CNBC, Schwartz said the discussions during those turbulent times included many promises from Dimon.  They weren’t contractual obligations, just his word.  Even as things continued to get worse, and the banks found themselves in a blizzard of problems and bad press, Dimon didn’t back down from any single promise Schwartz said.  “His word was more important,” Schwartz added.”

But, The Huffington Post had this to say about Dimon:

“JPMorgan Chase has become, in essence, the poster child for bad Wall Street behavior, and it will be made to pay for having earned that mantle.  Even more unfortunately for the bank, it has no one to blame for this mess but itself -- and its imperious CEO, Jamie Dimon.

… there was very likely a massive breach of fiduciary duty under Dimon's watch, and a reckless disregard for good corporate behavior. That in itself is enough to cast serious doubt on Dimon's ability to lead the bank into the future, and necessitates his immediate departure.”

Love him, or hate him?

While no-one would probably question Dimon’s status as poster child for Wall Street, I cannot agree with the Huffington Post blogger (above) adding the suffix “behavior” to the preceding statement. 

The grouping together – as “Wall Street” – of unrelated, individual people and/or parties, and then collectively blaming this amorphous group – that includes tens of thousands of innocent, hard-working people – for the “bad behavior” of few… shows a complete lack of objectivity, and borders on sensationalist reporting.

Disclosure: no positions