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.
January 2007
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.
2010: Tablet!
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.
January 2017
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.
I’m Out
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.
I clearly remember the day the iPhone came out and all the people in my office were flipping out about how awesome it was. I thought about buying stock, but at the time I was focused on using my cash to buy my first condo. The condo hasn’t moved in value during the last 10 years. Sigh. I guess it did keep the rain off my head….
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I am always a little wary of tech stocks, obsolescence risk scares me. Not necessarily a tech company, but I do love what Tesla is doing though. Very revolutionary. I don’t own any shares, but I could see that company outperforming. What’s your thought and plan with your large Facebook holdings?
Agree with you on tech stocks. The pace of disruption is increasing. Today’s hero is tomorrow’s zero.
I love Tesla too and have owned them since 2012: https://www.1500days.com/tesla/ People don’t realize that it’s more of an energy storage company than an auto manufacturer (that doesn’t make me less excited for the Model 3 though).
I’m slowly getting rid of my Facebook holdings. I purchased them after tax for an average price of about $29, so I’m trying to spread out my tax hit or save it for retirement when we’ll incur no capital gains.
In 2007, I thought the same thing about Apple. I was 17 and didn’t have money to purchase stock. I wanted to purchase Google and Netflix too….
Now that I’m 26, I’m investing in index funds, but leaving a little of fun money to indulge some stock pics. I just haven’t seen anything that I think is revolutionary.
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Another reason I would stay out of Apple in your case is the other contents of your portfolio. 2.5% of vstak is Apple stock. 12% of VGT is apple. That means your still holding nearly 15K in Apple even after sale. I assume you have other index holdings, so it probably holds true further.
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Great points FTF!
Nice post. Will the same happen to FB?
I was hoping someone would bring up the elephant in the portfolio!
Holding as much facebook as I do scares me. I’m slowly getting decreasing my position. I had 2000 shares until recently…
Can’t wait to see how it unfolds and read your litmus test for exiting.
I’ve been doing the same with FB – slowly selling. I’m intrigued by some of their growth ideas, but not enough for them to occupy more than a small % of my portfolio.
Yep, very high valuations and very small moat. Some company that doesn’t even exist yet could destroy them quickly. And maybe folks will just get bored with the platform.
I own Apple shares (way less than you diff), but I totally understand your motivation behind the sale. I think the key factor for Apple on a long term is whether they can play a key role in the next big technological trend (they played the smartphone one pretty well :)). It will also be interesting what can they do with the huge pile of cash they have abroad. If they can repatriate it in a tax efficient way (Trump?), that would mean share buybacks and dividend increase, which could both help the share price. This is the main reason (hope) why I keep on holding Apple.
Yeah, I’ve thought a lot about the repatriation of money too. It will be fascinating to see what they do with it. One time big-ass dividend? Maybe a some massive acquisition?
Think of all of the used phones/tablets/laptops in the market too. Sure a number of people always need the latest and greatest, but a version or two below for a great deal is hard to pass up.
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Your simple litmus test isn’t a bad strategy. Valuation is impossible for companies with huge growth and 10 years is long enough to let the thesis play out. Chipotle would have fit the mold when it first came public. Not so much today. Tesla might be the closest to a company with huge growth coming as they revolutionize transportation, batteries, and rooftops.
Thanks Ryan! Ha, I own Chipotle (https://www.1500days.com/chipotle/) and Tesla (https://www.1500days.com/tesla/) too.
I like Tesla a lot, but it’s quite pricey today. Like you said, loads of potential. I bought it because I think electric cars have a bright future as to lithium based storage solutions.
Oh mannn that’s killer that you bought stock right before the iPhone came out. Reading the news can pay off, eh? I do agree that the Apple Watch and smart watches in general are stupid.
My issue with Apple is that they didn’t continue to innovate. Google has, in my opinion, outpaced them. I’ve always been an Android person, but I do own a few old Apple products (never buying a laptop from them ever again though). Nothing truly revolutionary and transformative has come from that company in years, so I would be hesitant to own stock with them.
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I completely agree with you on Google. At first, their products were rushed and sloppy (first couple iterations of Android, Google Buzz anyone? Anyone?). Now, their services like Gmail and Maps are best in class.
I also love my Chromebook. The Macbook Pro that I’m typing this on may be my last one. And my phone is Moto X. It is almost 4 years old and still going strong.
How much we have learned from you Mr. 1500. As you wind things up I have enjoyed your blog. Thank you. I purchased Blackberry way back when it was making headlines, and as a Canadian wanted to support it. Fortunately I sold most of it before it began to decline, and I am thankful it helped us purchase our snowbird home. I learned early that you don’t count your earnings until you cash them in! Continued success to you, your Mrs. and your young family.
Thanks for the kind comments Judy!
It’s sad what happened to Blackberry. I thought early on that they should have kept their secure messaging platform, but thrown out their operating system and embraced Android. In any case, I’m glad you got most of your money out of it.
Apple is gone, where did all the money go? It’s not a top 5 purchase unless 50K was Amazon and 50K is elsewhere, presumably dinosaurs.
I really like Full Time Finance response as well, I think about that with my holdings, especially as it relates to company stock in my 401K.
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Until last year we were were a 100% Apple household – iphones, apple tv, laptops, ipads, monitor, the works. Now Mr. BITA has jumped ship to Android and he sings Google’s praises all day long (not to mention going on and on about how cheap his Project Fi plan is, even when we travel abroad). I still love my laptop though, and my iphone 5s, but I will agree with you that Apple hasn’t been exciting for a while now.
Have you ever visited https://kyleconroy.com/apple-stock? He doesn’t update it anymore, but it is a nice little regret site. It basically tells you how much money you would have made if instead of buying an apple product on a particular date you had instead bought apple stock. Given how much I’ve invested in apple products over the years, I would have been fabulously wealthy (it goes without saying that if everyone did this their stock price wouldn’t go up at all, but it is a fun thing to play with, in an ouch-that-hurts sort of way).
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I sold off my Apple that I bought a year ago when the stock got depressed to $100 and under (wish I bought way more at $90 than I did) in 1/3 chunks when it reached $110, $116, and $119.
If it got cheap again, I would buy in again (as long as the short-to-mid-term profitability of the company looked fine).
However, yes, I agree with you that there isn’t much in the way of pizzazz with Apple at the moment and what’s coming down the pipeline in terms of innovation. It’s hard to move the needle with new products when the iPhone makes up almost all of the profit and it was the *best* consumer product ever made – that’s hard to follow up on.
Interesting… I kind of want to predict that Apple’s earnings will slow down a bit in the coming years, so it would be a good sell, but the market can be mysterious at times.
Google Android has come a long way from the beginning and has been emerging with their marketing and advertisements on their recent products (Google Pixel, Google Home, etc).
I might be a bit biased though as I use an Android phone.
I find it interesting that at roughly the same time you sell, Berkshire Hathaway buys.
Could it mean that Buffett’s proverbial “voting” machine is no longer driving the stock price and it’s now about the weighing machine?
I think this is where Buffett and Co. excell. When the skies darken and a stock isn’t popular anymore, they pull out that weighing machine and gaze off into the future.
Inevitably, Apple’s brand, patents, momentum, and world-wide market share must play a role in that value.
Clearly they see some kind of value here.
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What is your take on Brk? I too have a position in Brk-b. I purchased most of my shares in 2008-2009. Have you applied your litmus test to your Brk holdings? Do you think Brk will outperform the S&P over the next 10 years? I’ve been thinking about liquidating my holdings as I’ve had a good run since 2008 and Warren Buffett is not getting any younger.
Hey Paul-
I think about this one every day, no joke. Buffett’s lieutenants, Ted Weschler and Todd Combs scare me. Clearly, they are responsible for acquiring the Apple and GM shares. Buffett and Munger would never pick up either of these. I’ve already illustrated my reasons for selling Apple, so I won’t say anything more about that.
GM: The auto industry is about to be massively disrupted by autonomous vehicles. When it’s cheaper to sign up for an autonomous, pooled car service than it is to drive, car sales are going to go in the dumper. And this will happen sooner than folks think.
So, my bigger point is that I don’t think Ted and Todd’s values are the same as Buffett’s and Munger’s. I think that they’ll trade in and out of stocks frequently which isn’t the Berky way (Buffett famously said, “Our favorite holding period is forever.”).
I’m not in a huge rush to sell my Berkshire shares, but I’ll probably get rid of them before the decade is out.
What do you think?
I’m not too concerned about the Apple and GM holdings at Berkshire. Apple amounts to less that .5% of Berkshire’s common stock holdings and GM is less than 4% last time I checked. I agree, though, that both seem to be very non-Buffett type stocks. Apple of course is a tech company, and GM is a capital intensive cyclical business. I suspect GM was a pure value play when purchased. Being bailed out by the US taxpayers certainly helped the valuation! Not sure on Apple; perhaps Buffett knows something we don’t or maybe it was purely a Combs or Weschler pick. I agree with you that Apple’s moat has gotten much smaller over the last few years.
Quite frankly, I’m not sure what I will do with my Brk-b. I told myself a few years ago that when my mortgage balance and the value of my Berkshire stock met, I would sell the stock and pay off the mortgage. Those two graph lines crossed early last year and I still have the mortgage and the stock. Part of me wishes Berkshire would start paying a dividend. Buffett and Munger are once in a lifetime allocators of capital, and like you, I just do not think Combs and Weschler will be able to match up. The size of the company makes the job that much tougher. Paying some of that excess cash to the shareholders might be appropriate.
My other issue is that I will have a large tax bill if I sell the stock. I know, nice problem to have, but I may hold on to the stock until I retire when my tax bills are lower.
I have two primary concerns about Brk-b: One, Munger and Buffett are both very elderly. What happens when they are gone? Buffett claims to have a solid succession plan in place but details are sketchy. If I knew Ajit Jain was in line to take Buffett’s place I’d feel more comfortable. Two, Berkshire is a massive company and as Buffett has said repeatedly that makes beating the market that much more difficult.
I’ll likely hold the stock for a few more years.
I like Ajit Jain a lot too, but I’d be curious to know why you think he’d be good at running Berkshire. He’s been limited to insurance operations, hasn’t he? To me, he seems like more of an operations guy. Kind of like Tim Cook was in Apple.
Based on what I know about him, which admittedly is limited, his expertise is re-insurance and generally, the insurance business. Berkshire, at its core, is an insurance holding company, with many subsidiaries, and a big key to its long term success is making a superior return on its insurance float. Buffett speaks and writes often how important Mr. Jain is to Berkshire. Whether or not he could step into Buffett’s role and successfully run the company is just a guess on my part. Based on what I have read about him he seems “culturally” to be all Berkshire, if that makes sense.
Congrats on taking those profits. Its always hard to pull the trigger and making the decision. But as ive been saying, you can never go wrong taking profits. The only thing stopping people is more greed and hope that the stock will continue rising. I hear you on loving a prouduct and company and not loving the stock. Stay indifferent (emotionally) and thats the best thing you can do.
Best wishes
R2R
Yep, emotions are always and by far, the hardest thing to control for most people. Myself included. I love Apple and hope they continue to thrive, but I’m just really confident that they will.
Hey, Amazing post with great Research, Love your site. Thank you
Oops. On the day you sold Apple was at $115.54. Today it closed at $135.01. A difference of $19.47 a share, or $16,425.87, so far.
The best advice for all stocks is to do nothing. You were collecting an OK dividend from a company with a quarter of a TRILLION dollars cash. The largest company in the world. A company that has MULTIPLE streams of income that would be in the S&P 100.
As Warren Buffett and Charlie Munger always say, in the long run, the market will price a stock correctly. Apple has been undervalued for a long, long time. Bad timing on your part, and it happens to the best of us, but that’s why these types of posts are dangerous.
Keep up the good work on your site, live and learn and move forward.
Apple doesn’t have as much cash as people think: http://www.marketwatch.com/story/dont-believe-the-hype-apple-added-more-debt-than-cash-2016-10-26
It’s only bad timing if you’re thinking about the very recent history. I don’t like to own a stock unless I am reasonable confident about its chances over the next 10 years. I just don’t have the same confidence that I used to. I’d much rather have my money in Google, Amazon or a boring index fund.
To keep the momentum going, they have to find a way to keep juicing iPhone sales or come up with something new that is big enough to move the needle for a massive company. Either will be very difficult to do.
If I had to guess, I’d say that Google will beat Apple to the 1 trillion mark and will be the first company to achieve that lofty cap.