First, let me say that I realize the irony in writing about “the obsession with Apple Inc. (NASDAQ:AAPL)” indicates that I am somewhat obsessed with the stock. However, I write this piece to illustrate a point. That one’s chances for investing success are greatly enhanced if one can focus on areas that are far off radar.
I must admit, Apple Inc. (NASDAQ:AAPL) is a great company with a great product lineup. However, a great company and great investment do not always coincide. The company has had a sensational run during the past decade as both an investment and product innovator, but all good things must ultimately come to an end (or at least slow down). However, this piece is intended to highlight the psychology of investing, not necessarily to discuss its merits as an investment.
Nearly a decade ago, it would have been impossible to find anyone in the financial press discussing the company. It took years of incredible product introduction and equally impressive stock performance for the media to take notice. So when media outlets began to obsess about the stock over the past year, I began to get weary. Soon the ticker was appearing on every broadcast showing the minute by minute trading activity. Earnings releases were treated like a major news announcement. Many sell side analyst began moving price targets to match the stock’s astronomical rise. I think the final straw came when friends and colleagues started to persist with questions regarding Apple Inc. (NASDAQ:AAPL)’s future.
Although I couldn’t predict when, it didn’t shock me to see the price of AAPL shares correct. Will it drop further? I honestly don’t know. The company’s latest quarterly results weren’t all that disappointing, but the stock sold off regardless. Generating quarterly run rates of almost $40 billion is no small feat. This is the problem with built up expectations and obsession. Actual results can’t possibly match those lofty expectations. Interestingly, valuations aren’t all that obscene – trading at only 7x EBITDA.