I owe you a post on my portfolio. It has changed much since I last wrote about it in December of 2015. For now, I’ll tell you about one of the biggest moves I’ve made in the past decade.
Disclaimer: Do not take this post as investment advice. These thoughts are mine. Make up your own mind.
I am done with Apple. A couple weeks ago, I had almost $97,475 in the company and it was my 3rd biggest holding.
On January 3rd, almost 10 years to the day I bought my Apple shares, I sold them all**. Now, my top 5 holdings looks like this:
Before I explain why I sold, I must explain why I bought.
I wasn’t an Apple fan and paid almost no attention to the company until 2006. That year, I started hearing rumors that Apple may be coming out with a smart phone. I was intrigued because the state of smart phones was abysmal. In January of 2007, I watched with the rest of the world as Steve Jobs took the stage and introduced iPhone to the world. I had two thoughts immediately:
- Amazement. The iPhone was the first good smartphone. I had never owned one before because they didn’t do much well. I wanted a phone that could play music, display maps, take pictures and had internet access. The iPhone did all of these things and the touch interface was brilliant.
- Big moat. No other phone company had anything like the iPhone. And I knew it would take a long time for anyone to catch up. Google had already purchased Android, but it was a joke.
I hit the buy button to purchase Apple stock.
A visit to Google in 2009
A friend of mine worked at Google and I went to visit him back in 2009. The Google office was incredible, just like you’ve read about. It was St. Patrick’s Day and I enjoyed the free, gourmet food that Google is famous for. I loaded my plate with corned beef and cabbage. There were shamrock shaped sugar cookies and let me tell you, I didn’t hold back.
That afternoon, I was talking to some of the Googlers and the conversation turned to phones. I asked what they thought of Android. I’ll never forget the eager and forceful response that one Googler had no hesitation in letting loose:
Android is a piece of shit compared to iOS.
Phew, my Apple stock was safe.
This was also the year I purchased my first iPhone, a 3GS. I also released my first app that year.
In 2010, Apple released the iPad. It was the first, good tablet and Apple sold a lot of them (note that iPad sales have since been in decline for a long time). I bought one and it still works great today:
I still felt good about my Apple stock.
2015: Apple Watch
I was underwhelmed. I thought the design was clunky and it didn’t have enough functionality to justify the device. The Apple Watch hasn’t moved the needle for Apple’s bottom line.
The world has caught up to Apple:
- iPhone: iPhone accounts for about two-thirds of Apple’s revenue, but Android, is now every bit as good as iOS. On the hardware front, Chinese companies are pumping out great hardware that cost a fraction of what an iPhone costs.
- iPad: The cheapest iPad is $269. Over at Amazon, you can purchase a tablet for $50. It isn’t as nice as an iPad, but it is good enough for a lot of people.
- Chromebooks in the classroom: Apple used to dominate the educational sector. Not so much now as cheap Chromebooks are quickly replacing Apple products.
Despite these challenges, Apple isn’t going away any time soon. The next iPhone will be a new design and it will probably be a big hit. There are other reasons that Apple may continue to be successful:
- Transition to services: Apple has a massive install base. If the company can leverage this to make money from payment transactions (Apple Pay), streaming music (Apple Music) and movies; it may continue to thrive.
- Apple Car: Rumor has it that Apple is working on an autonomous, electric car. If this is true, they’ll be playing catch up to Tesla. Building a car isn’t for the faint of heart.
- ???: Apple is a secretive company, so no one knows what they’re working on. Perhaps they’ll come out with a crazy good augmented reality product. I have no idea.
Apple still makes wonderful products that have a good habit of lasting forever (***looking at you HP and Dell laptops that didn’t even last 18 months***). I’m a big fan of the company, its designs and its principles. I composed this post on my Macbook Pro which is an indispensable tool in my life.
And I feel sad for Apple. The company invented a truly revolutionary product and an app store to accompany it, only to have the idea copied by Google:
My Litmus Test
Loving a company is different from loving a stock. I sold my Apple stock because I don’t have the same confidence today that I had in the business back in 2007. Smart phone sales are slowing as markets saturate. New features are incremental instead of giant leaps forward. Apple will need to come up with new tricks to create growth. This is too much uncertainty for me.
I’m a long-term, growth investor. While I’m an indexer these days, I don’t rule out buying a stock again someday. My litmus test for buying a stock is very tough though:
Do I have a strong degree of confidence that the stock will outperform the S&P 500 over the next 10 years?
It is very, very difficult for me to answer Yes to that question for any company, therefore I mostly stay away from stocks. I still hold on to some of them that I bought a long time ago because I believe they have very wide moats. Google and Amazon fit that bill.
I don’t have strong confidence that Apple stock will outperform the S&P 500 like I did in 2007. So now, I exit.
*Personal Capital affiliate link: I love Personal Capital and spend waaaaay too much time on the site. And it’s free! If you click the link and sign up, I may make some money. If you do, I’ll buy you a beer next time you’re in town.
**Luckily, these shares weren’t in a taxable account, so I’ll incur no tax hit from the sale.
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