Thank for sharing your thoughts. Very refreshing, what I expect from a Mac user (Eric, hear me ). Are you saying $78.20 is a multi-week, multi-month or multi-year bottom?
Yes.
Apple has grown throughout 2008, while its competitors have struggled. This isn’t to say that the economic conditions of 2008 didn’t impact Apple, its just that the impact amounted to slowing the growth rate. Apple’s YoY revenue did not decline.
The only other thing of any significance that was hanging over AAPL, was rumors about Jobs’ health. When he stepped down on medical leave, the worst of the rumors was confirmed, yet AAPL only dipped to about $80. $78.20 came about a week later.
The only thing left that could impact AAPL now is a failure in Apple’s fundamentals, and I just don’t see that happening, even in this economy. Apple’s products are just too compelling to be rejected by the consumer for lesser products. Evidence of that is in the results of Motorola, Acer, Palm, Dell and Lenovo (among others). They ALL have products that cost less than Apple products, and they are suffering, while Apple is not.
At this time (which means subject to revision) I’m forecasting 2009 EPS at $6.82, and $8.95 for fiscal 2010. A nominal ISM in 2010 of 25 results in AAPL at $225. I expect ISM to be slightly higher than that.
That’s on nominal (for Apple) growth of 14% (computers) vs 37% during 2008, and 49% for 2010. iPhone growth is going to be exponential (initial growth phase).
I am not concerned by the seemingly high computer growth forecasted during 2010, because this corresponds with the mass adoption phase of paradigm shift as described in “Inside the Tornado: Marketing Strategies from Silicon Valley’s Cutting Edge” (1997). That book should be required reading of anyone covering Apple/AAPL. When you understand the dynamics of a paradigm shift tornado, you can see exactly what is happening with Apple.
After reading it you’ll see that RIMM, Nokia, Palm et al, have already lost the war. A paradigm shift is about to happen in mobiles, and its being led by Apple, which has a multi-year head start. “It’s the OS, stupid”.
The App Store is the cement that guarantees the iPhone’s dominance. 16,000 Apps, nearly 600,000,000 downloads in 8 months. Before the competition can compete with that, they must release a product that the consumer desires more than the iPhone, with an SDK developers find attractive. But while the competition is trying to catch up with iPhone 1.0, Apple is working on iPhone 3.0.
You are confusing earnings with Investor Sentiment. Forecasting earnings is pretty straightforward, and does not require being exact. On the other hand forecasting Investor Sentiment is much more difficult because it is swayed by a myriad of outside forces. Accurately forecasting Investor Sentiment is the key to accurate price targets.
If you can tell me how you can accurately forecast human emotion, I’ll be more than happy to learn.
You have to start with a change in definitions.
Wall Street has corrupted the term PE. While it does measure the relationship between price and earnings, it is neither good nor bad. It is what it is.
What the formula P divided by E truly measures is the result of Investor Sentiment. As that sentiment goes up, so too does the ratio. When sentiment goes down, so too does the ratio. Because investors buy on their sentiment/expectations of future earnings, I have renamed the term PE and now call it ISM - Investor Sentiment Multiplier.
Until 2008 I was very successful in forecasting the next quarter’s ISM by averaging the change in ISM from the previous three quarters. Remember, sentiment can be seasonal to a large extent. Paying attention to analyst comments and various research group reports also is an indication of tone. It helps to know who the idiots in those fields are.
My method isn’t perfect. Based on the average change in sentiment for fiscal 2006, 2008 & 2008 I invested in February Put contracts thinking AAPL would go down right after earnings. I should have taken into account that AAPL was already at its bottom, but I didn’t.
The one thing my method can’t tell me is when, within a quarter, AAPL will hit its high, or low.
The P/E ratio is only good as a comparative tool between one company and another company in the same sphere of activity. Taken on its own, the P/E ratio is not a good tool for telling you anything substantive about a company, especially in the short-term. For that, you would need to look at other tools, such as profit-margins, debt-ratio, inventory turnover, return on assets, etc. Then and only then would you be able to say anything substantive about a company’s fundamentals.
Sentiment, while playing a part in the P part of the P/E ratio, is unpredictable. You cannot rely on past sentiment to predict future sentiment, as so many hapless investors will readily tell you. What you can do is focus on the E part of the formula. Unfortunately, that’s the best anybody can do.
Thank for sharing your thoughts. Very refreshing, what I expect from a Mac user (Eric, hear me ). Are you saying $78.20 is a multi-week, multi-month or multi-year bottom?
Yes.
Apple has grown throughout 2008, while its competitors have struggled. This isn’t to say that the economic conditions of 2008 didn’t impact Apple, its just that the impact amounted to slowing the growth rate. Apple’s YoY revenue did not decline.
The only other thing of any significance that was hanging over AAPL, was rumors about Jobs’ health. When he stepped down on medical leave, the worst of the rumors was confirmed, yet AAPL only dipped to about $80. $78.20 came about a week later.
The only thing left that could impact AAPL now is a failure in Apple’s fundamentals, and I just don’t see that happening, even in this economy. Apple’s products are just too compelling to be rejected by the consumer for lesser products. Evidence of that is in the results of Motorola, Acer, Palm, Dell and Lenovo (among others). They ALL have products that cost less than Apple products, and they are suffering, while Apple is not.
At this time (which means subject to revision) I’m forecasting 2009 EPS at $6.82, and $8.95 for fiscal 2010. A nominal ISM in 2010 of 25 results in AAPL at $225. I expect ISM to be slightly higher than that.
That’s on nominal (for Apple) growth of 14% (computers) vs 37% during 2008, and 49% for 2010. iPhone growth is going to be exponential (initial growth phase).
I am not concerned by the seemingly high computer growth forecasted during 2010, because this corresponds with the mass adoption phase of paradigm shift as described in “Inside the Tornado: Marketing Strategies from Silicon Valley’s Cutting Edge” (1997). That book should be required reading of anyone covering Apple/AAPL. When you understand the dynamics of a paradigm shift tornado, you can see exactly what is happening with Apple.
After reading it you’ll see that RIMM, Nokia, Palm et al, have already lost the war. A paradigm shift is about to happen in mobiles, and its being led by Apple, which has a multi-year head start. “It’s the OS, stupid”.
The App Store is the cement that guarantees the iPhone’s dominance. 16,000 Apps, nearly 600,000,000 downloads in 8 months. Before the competition can compete with that, they must release a product that the consumer desires more than the iPhone, with an SDK developers find attractive. But while the competition is trying to catch up with iPhone 1.0, Apple is working on iPhone 3.0.
This guy does a very good job explaining why the iPhone, combined with the App Store, will dominate the ‘smart phone’ market.
Another compelling reason; App Store currently has 19698 apps!
Seriously Apple needs to allow more than nine screens of apps. I have the 16G model and am tired of having to remove something I use so I can try out something else. And if I like the new app, I have to sacrifice something permanently.
EDIT: While books (typically public domain titles for .99¢, which Stanza can deliver for free) are counted as Apps, I’ve noticed a new higher priced series of books ($10-30 a pop) which use the Iceberg Reader. The rumor mill is pumping the idea that Amazon may start making Kindle titles available for the iPhone (and other phones), which will probably also be counted as Apps. The 20,000 mark is right around the corner!
I’m surprised Apple hasn’t yet bumped the iPhone’s capacity to 32GB. Could happen anytime: Probably will see a hint of it with some correlation in channel inventory drops.
Another compelling reason; App Store currently has 19698 apps!
Seriously Apple needs to allow more than nine screens of apps. I have the 16G model and am tired of having to remove something I use so I can try out something else. And if I like the new app, I have to sacrifice something permanently.
EDIT: While books (typically public domain titles for .99¢, which Stanza can deliver for free) are counted as Apps, I’ve noticed a new higher priced series of books ($10-30 a pop) which use the Iceberg Reader. The rumor mill is pumping the idea that Amazon may start making Kindle titles available for the iPhone (and other phones), which will probably also be counted as Apps. The 20,000 mark is right around the corner!
The iPhone hasn’t been on the market two full years yet, and its already won the war. While competitors are struggling to come up with something to offer against iPhone 1.0 Apple is about to release iPhone 3.0.
Now what would be in iPhone 3.0 that iPhone doesn’t already have?
hmmm, full multi-tasking with background functionality?
32 Gig memory?
and stuff we never knew we wanted… for sure.
Give it six months, then come back with a review of the next gen.
Update: If the DJIA hits 9,000, sell Apple at whatever price it is trading at. Buy Apple back when the DJIA pulls back to 7,800 and hold for the long term. The DJIA is in the process of climbing to its neck line at 9,000. I expect the dow to make its right and final shoulder down at around the 7,500 level. That will be the final bottom in this market and will mark the beginning of a massive multi-year bull market. If you bought Apple in the $80’s under my recommendation, it might be time to consider selling some of that position in the $130’s. Its time to taper back just a little and to sell the reset of that position if the dow hits 9,000. Best regards and happy trading/investing.
... If you bought Apple in the $80’s under my recommendation, it might be time to consider selling some of that position in the $130’s ...
Why is it necessary to do anything since it will be a multi-year bull market after the right shoulder? Selling and buying requires that you’re right two times, sell at the correct time and buy back at the correct time. Won’t buying near-month puts better than outright sale?
... If you bought Apple in the $80’s under my recommendation, it might be time to consider selling some of that position in the $130’s ...
Why is it necessary to do anything since it will be a multi-year bull market after the right shoulder? Selling and buying requires that you’re right two times, sell at the correct time and buy back at the correct time. Won’t buying near-month puts better than outright sale?
My thoughts as well. If one is overweight and has some stomach for timing of the market w/predicted gyrations, go at it. But predicting it on time is something I’m kind of done with, given the time horizon I have (1-2 years). The other thing is, this market is in uncharted territory, and I’m not confident the past follows recent historical chart patterns. If the market dips, I’m buying more. But I’m not “feeling lucky” getting it right twice.
Update: If the DJIA hits 9,000, sell Apple at whatever price it is trading at. Buy Apple back when the DJIA pulls back to 7,800 and hold for the long term. The DJIA is in the process of climbing to its neck line at 9,000. I expect the dow to make its right and final shoulder down at around the 7,500 level. That will be the final bottom in this market and will mark the beginning of a massive multi-year bull market. If you bought Apple in the $80’s under my recommendation, it might be time to consider selling some of that position in the $130’s. Its time to taper back just a little and to sell the reset of that position if the dow hits 9,000. Best regards and happy trading/investing.
Best,
Andy
I made the above comment on May 4th and only now are traders starting to see this inverse head and shoulders on the SP500 and on the DJIA. Optimally, a sale of Apple at the $140 level would have been excellent. I took short positions at the $143 level and have just recently covered those position and now I’m all cash. I still stand by my recommendation that Apple should have been sold at $140 and people should renter those long positions when the dow is at 7,500 and the SP500 is sitting near the 740 level. I think once that correction is over, the market will go into a multi year bull market. Personally, I’m going long at whatever price point Apple is sitting at when the SP500 is at around 740.
As pointed out by Mercel and me on May 4, is hard to be right two times. Except when you’re astute traders like Eric and Wheeles .
Day trading and market timing are two different animals IMO.
The bottom line of this analysis is that unless you have a crystal ball you are going to miss major upward market moves and you will seriously undermine your returns. In fact, in 1975 William Sharpe published a seminal article on this topic: “Likely Gains from Market Timing”. In this article Sharpe demonstrated statistically that in order to benefit from a market timing strategy you had to guess right 74% of the time. [2]
Historic performance data confirms this conclusion. When Brinson, Hood, and Beebower conducted their analysis of the performance of 91 pension plans from 1974 to 1983 they determined that market timing had detracted from performance by .66% [3]
As pointed out by Mercel and me on May 4, is hard to be right two times. Except when you’re astute traders like Eric and Wheeles .
Day trading and market timing are two different animals IMO.
The bottom line of this analysis is that unless you have a crystal ball you are going to miss major upward market moves and you will seriously undermine your returns. In fact, in 1975 William Sharpe published a seminal article on this topic: “Likely Gains from Market Timing”. In this article Sharpe demonstrated statistically that in order to benefit from a market timing strategy you had to guess right 74% of the time. [2]
Historic performance data confirms this conclusion. When Brinson, Hood, and Beebower conducted their analysis of the performance of 91 pension plans from 1974 to 1983 they determined that market timing had detracted from performance by .66% [3]
Let me know what those statistics turn out to be from December 2006 to December 2016. Also curious as to what were the from say December 1929 to December 1939?
Statistics can be used to prove just about any theory. I think there are far fewer investors now that subscribe to the buy and hold to perpetuity theory.
It might be a good thing if people are actively looking at their accounts and re-allocating every so often.
These studies are BS because of when the time period covers. For the average invester, it is more luck than anything else.
At the beginning of 1995, the S&P was climbing in a generational bull market and was only around 600. 10 years later it was at 1181. What if an invester entered at the end of 1999 until now? The start would have been 1394 and now at 940. But wait, do not dispare! Maybe by the end of the year the S&P will climb back to 1400 and you can break even!
Of course nobody wants to take the 10 years from the end of 1998 until the end of last year, do they? You would have lost 35%!
As pointed out by Mercel and me on May 4, is hard to be right two times. Except when you’re astute traders like Eric and Wheeles .
Me? Astute? I’ve had some very poor luck of late. Every time I see this puppy about to roll over, I go short and then some **** on CNBC comes out and gooses everything up higher! I’m getting so sick of this that I am planning to scale right back on day-trading and start looking to trade micro-trends (i.e. trends that last a few days to a couple of weeks or so). If I had been doing that I would have caught the bulk of the rally from March including pullbacks instead of finding myself leaning the wrong way far too often.
The way the HFT bots are moving the market, I figure I need to take a step back an order of magnitude. From what I can see, AAPL tends to move in swings of $10-20. Up and down. Sure, it wiggles around a bit on each move, and in the past I’ve tried to catch some of those wiggles, but the way the HFT bots play the game these days, it’s easy to miss the bulk of a day’s move, or find yourself on the wrong side of it, then you spend the rest of the day playing catch-up.
There may be two or three days between each tradable micro-trend, when there’s not a lot of movement, but once you get on a micro-trend, with the right system, you can probably bag 70-80% of it. Now and again you’ll get whipsawed out of a position, but once on a trend you soon make it back. That’s where I plan to move my trading as trading the wiggles is the fast track to burn-out, and the bulk of anyone’s money is made simply sitting on a trend.
Some people may describe this as swing trading, but I always saw that as trading off TA patterns. With the rise of the algo trading computer I am not so sure that TA patterns are as reliable as they once were. Whereas I am more thinking in terms of trading a system based on price and moving averages rather than TA patterns. It’ll mean less trades and seeing equity swings, but it will also mean more free time as well. It will also mean I pay less “GS tax” when they step in front of my trades.
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). Are you saying $78.20 is a multi-week, multi-month or multi-year bottom?
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