patrick.net

Please do. I'll be happy to take the other end of that trade.

If you believe that shorting the most successful, profitable, largest, company is a smart way to build your fortune, you are a speculator not an investor.
This is not the way to build your wealth over time.
Warren Buffet for example emulates my little old lady neighbor who is richer than god. She bought blue chip company stocks many decades ago and now she's worth millions. But, she's 90 now so she's going to pass this huge wealth on to her children.

Apple will have many headwinds in the next few years.

-If the student loan bubble stops growing at the rate of the last couple of years it will hit Apple hard. Many of those loans are buying macs and iPads.

- Amazon is a lot cheaper for devices and content. I own an iPad but buying movies from iTunes is a lot more expensive than Amazon.

- Apple cloud is weak in comparison to Google and Amazon.

- Do not underestimate Windows 8 tablets.

Shorting Apple is dangerous but could be very rewarding at these levels. we could see Apple go down to 250-300 in the next two years if student loan growth slows down or reverts.

treatmentreport says

-If the student loan bubble stops growing at the rate of the last couple of years it will hit Apple hard. Many of those loans are buying macs and iPads.

"Many"?

The biggest demographic buying iPads is 35-44. Your argument is not convincing.

There are about 6 billion people who want to buy an Apple product. They are in countries with no debt. This means Apple will sell ever increasing numbers of everything. This means more profit for Apple.
Windows tablets won't have any significance.

Tesla. It's a cross between Solyndra and DeLorean. And for good measure, like Solyndra its got the (Cool and Hip) dotcommer schtik AND like Solyndra it is located in Fremont.

Vicente,

I believe that student loan is one of the "headwinds". If you look at the explosion of student debt and Apple sales in the last three years there is a pretty good correlation regardless of demographics. Apple has always been strong in education and I don't think this time is any different.

Clambo,

Using your argument. There are about 7 billion people that want to buy a Mercedes. That means more profit for Mercedes.

I agree that there a lot of people that want Apple products but the products are expensive and people will settle for cheaper alternative (device + content). Same with Mercedes, many people want them, but many can only afford Ford focus and the like.

treatmentreport says

If you look at the explosion of student debt and Apple sales in the last three years there is a pretty good correlation regardless of demographics.

Could be.

But isn't the US market kinda like a gnat on the back of an elephant?

The difference between Apple products and Mercedes is obvious: Apple sells many products that many of those 6 billion people can afford. Which device depends on many things. I don't know about an entry level Mercedes.
You cannot buy the same yacht the Sultan of Brunei has. You cannot buy the Gulfstream Jet a gazillionaire owns. You can't buy all Armani clothing, you can't afford a penthouse apartment.
BUT: you can own the same cell phone, same laptop and same iPad that the richest people own.
Everyone thinks that the "poor" or "developing countries" cannot afford to buy trinkets like Apple gear. The truth is the opposite: these people usually don't make much money but they also have no debt. They simply save up to buy the products they really desire.
Apple is unique because the consumer desire for them is so strong from time to time it's like a mania, but they sell lots of stuff.
Apple also makes money all over the place. Shoot, among the 25 billion apps downloaded, how many did Apple get a 30cent cut from? That's easy money.
I would not short a stock like Apple, but there may be some others out there that could fall. Netflix comes to mind immediately.

There is a great deal of assymetry between being long and being short. When you are long you can just get a cheap stock and wait, if the market takes forever to correct you can just hold on and collect dividends. It does not work at all this way with shorting an overvalued stock.

I consider going long in stocks I believe are 20% undervalued. I consider going short stocks only if I think they are 100% overvalued.

At 16X earnings APPL is nowhere near my shorting level. Incidentally, AMZN does feel 100% overvalued at 100x earnings.

treatmentreport says

Same with Mercedes, many people want them, but many can only afford Ford focus and the like.

You heard what happened to Gucci and dozens of other luxury brand makers? Or what happens to a lot of underground 'cool' 'cult' bands when they bust into the mainstream?

They often lose their ability to impress, and then nobody wants them anymore.

If everybody had a Mercedes, it would no longer be a status symbol.

thunderlips11 says

If everybody had a Mercedes, it would no longer be a status symbol.

I don't understand this mentality. Apple makes a useful WIDGET. My 70-year old aunt bought one and loves it because of all the neat things it can do and how much easier it is for her than a computer.

A few years ago "netbooks" were a hit product, and the only reason they are not now, is because someone invented a better mousetrap.

Vicente says

I don't understand this mentality. Apple makes a useful WIDGET. My 70-year old aunt bought one and loves it because of all the neat things it can do and how much easier it is for her than a computer.

I agree, people certainly buy more products that are considered more expensive/luxury brands for user friendliness. I was addressing the general retail principle that for a luxury brand like Mercedes, status symbol "utility" (and the premium charged for it) is inversely proportional to the number of owners.

Have you heard what happed to the luxury brands owned by LVMH? BMW?
Nike is another example of a quasi-luxury brand, they have riots over their air jordan sneakers that cost about $150.
My crystal ball says that Apple will make about $250 million dollars profit on Friday on one product.

I believe that one of the biggest threats to Apple is that their iPhones are massively subsidized by the carriers. At some point, the wireless companies WILL rebel. That could be tomorrow, or it could be 10 years from now. What's clear, is that Apple is not rapidly growing smartpohone share in the poorer markets -- this territory favors lower priced Android phones without subsidies. Not necessarily a problem, but disruption will always come from below -- so these markets are the ones to watch. Have you heard about the 'Facebook Only' phones?

clambo says

Nike is another example of a quasi-luxury brand, they have riots over their air jordan sneakers that cost about $150.

Apple's strength is in their margins, not so much the market share.

Margins that depend on not being treated as a cutthroat competitor by the suppliers who make competitive products.

"There's a good number of people thinking it's a good time to start shorting Apple."

I hear sheep.

Don't be a sheep :-)

I see the logic. Now that AAPL is over $550/share, it will be best to just wait until AAPL is $600 or $700/share and THEN short it right?
Wait, the best time to short AAPL is coming!
Why didn't I think of that? I will therefore sell my AAPL and put it in cash and patiently WAIT until the perfect short Apple opportunity when it arises.

Anyone talking about Macs in the context of an Apple discussion has no idea what they're talking about.

Apple makes 70% of their revenue and 90% of their profits from iOS devices.

Within that, though, there are two products that matter, the iphone and ipad.

The iphone is basically untouchable. It will never go beyond the 20-30% market share that it currently enjoys, but it will hold that spot for many years. Android OEMs will fight tooth and nail over the bulk of the market, but none of them will be able to enjoy the brand loyalty, economies of scale, and supply chain advantages that Apple holds. It's just like the PC business all over again.

Sales will flatten eventually, as the market saturates, but they'll be selling iphones like hotcakes well into the next generation.

The ipad is another story entirely.

For all intents and purposes, the ipad *is* the so-called "tablet market", much like the ipod is the "portable music player market".

Here is what apple has going for it:

- Massive third-party software advantage. Not only in quantity, but in quality. Developers love the ipad because it's only three hardware configurations to worry about, with tens of millions of users. All hundred+ competing tablets *combined* don't have that many users, and they all have widely varying hardware configurations.

- Even bigger retail / customer service advantage. Did your galaxy tab break out of the blue? Good luck dealing with Samsung. Two weeks for an RMA, and if it's not under the 90 day warranty you're out $200 to fix the thing. Nobody can help you with it because the salespeople at best buy are clueless and samsung does not offer technical support worth a damn.

- Incomparable content advantage. Only amazon even comes close, but that's only because of an e-book / audiobook advantage.

Nobody wants windows tablets for the same reason that nobody wants android tablets: They don't offer anything that people don't already have. They're made by OEMs who think that people buying these things care about OS features and hardware specs. Dumb execs think that people are buying ipads because they're inexpensive PC alternatives, but that's not it *at all*. People are buying ipads because they are the single best entertainment device that you can buy.

Frankly, I wouldn't be at all surprised if the iPad becomes the primary entertainment and information platform over the next decade, period. Entertainment and information is what most people use their PCs for, so as such it will become the dominant computing platform.

The only real risk to Apple is that they're not going to be able to continue convincing everyone to upgrade every year for too long. Eventually they'll be looking at two or three year upgrade cycles, and their revenue won't be able to continue growing like it has been without a new business.

treatmentreport says

I agree that there a lot of people that want Apple products but the products are expensive and people will settle for cheaper alternative (device + content). Same with Mercedes, many people want them, but many can only afford Ford focus and the like

The price difference between Apple products and it's competitors is NEGLIGIBLE... Apple has streamlined their pipeline and cut margins so thin for it's competitors. You can buy a $500 IPAD or a what? A $200 half-powered, half quality, Amazon kindle?

Also RESALE value of Apple products is AMAZING... I can upgrade my IPHONE or IPAD almost every year! Sell my 1 year-old phone online and pay for the new version with the money. Out of pocket it costs very little to keep upgrading.. Especially a married couple...

I upgrade my iphone.. hand my 1 year old one to my wife... the next year i upgrade.. she gets my 1 year old phone... I sell the 2 year old IPHONE for $200-300 on ebay.. they hold their value THAT well!

BoomAndBustCycle,

Amazon content is much cheaper than Apple's. We have many ios devices but we buy content primarily through Amazon with a few exceptions. Amazon fire is a first generation device and for watching content is not much different from first generation iPad.

Apple's success was driven by its CEO, Steve Jobs, being accountable to no one but himself. Thus, Apple did not follow in the lines of the traditional corporations of multiple silos and turf building between executive VPs. Thus, Jobs was able to reverse engineer... starting from the p.o.v. of the user, and backtracking it to R&D, delivery, & marketing. In another company, if someone (who isn't the founder) tries the above, he'll be stepping on the toes of sales, marketing, R&D, and production VPs. Most likely, that person would be shown the door, in a year or two. Thus, the success of Apple is not reproducible in corporate America, including Apple itself, w/o Jobs around. So I wouldn't short apple but I think its juggernaut days are over.

BoomAndBustCycle says

The price difference between Apple products and it's competitors is NEGLIGIBLE... Apple has streamlined their pipeline and cut margins so thin for it's competitors. You can buy a $500 IPAD or a what? A $200 half-powered, half quality, Amazon kindle?

Two completely different products. iPad is for movies and games; Kindle is specifically built for reading books.

The iPad is fine for surfing over and reading a PDF menu or browsing a website. Kindle is for actually reading books page after page after page.

The rendering on the screen is entirely different between the two. I get a headache reading a book in the dark for an hour on a backlit screen or in the sun; not so with Kindle. I charge my Kindle maybe once every month, and I use it an hour a day. It's also simple to use. And it costs $79.00, not $200.

Also, Apple's margins are big and fat, not small. I think the iPad has a 60% margin.

I would not short Apple for two reasons: I can't see Apple failing for the few quarters at least - at least until after the second (third?) attempt at AppleTV.

And most importantly, I'm too emotionally invested in Apple failing.

suziclue says

Been searching around and talking to other investors in chat rooms

There is your first mistake. Chat room? I'd be willing to bet that over half of the people in there are throwing out opinions based on their current position. Shorters would love for you to sell, and longs would love for you to buy. You are being easy prey by going there asking for advice. The only reason I would ever go into a chat room or message board is to look for links to actual interesting data. I would never go there looking for advice. It is like going to a late night club in the dirty part of town looking for someone to marry. Not a great idea.

RandyL says

Apple's success was driven by its CEO, Steve Jobs, being accountable to no one but himself.

LOL.. the SOB just loves to blame others... cause he knew he could do no wrong..cause he was the CEO from Hell...

"LOL.. the SOB just loves to blame others... cause he knew he could do no wrong..cause he was the CEO from Hell... "

You know, that's how it is.

For the rest of us, we need a paycheck. We can't afford to piss off a cadre of executives with entrenched power in a company.

Thus, there's no *Apple University* because no one can stand up and speak his mind w/o being shot down by others with more power than himself.

I've never understood why no one's got this point. Jobs was independently wealthy. If Apple's board took him back, they were on his terms, no one elses.

don't listen to all those that say that you are crazy to short. Most people don't have a clue about trading and shorting stocks. Most people wrongfully believe that you can only make money shorting when the company collapses. You can trade AAPL and others multiple intraday on the short and long side.

Now in regards to shorting AAPL for a bigger correction. I do not short any stocks as I prefer to buy the Puts. I would wait with AAPL for a bit longer as I don't like to play against the hype of the new device. I'd also look into a put play on QLD as that symbol moves well.

If you haven't played options you can read my article about how to hedge gold and silver positions. I released that a couple days before the gold and silver correction of last fall ;)

http://www.wtffinance.com/2011/08/how-to-hedge-physical-silver-and-gold-positions/

Intraday trading? You're not an investor.

clambo says

Intraday trading? You're not an investor.

Oh come on now. This is America! Investing is all about buying from a lesser fool today and selling to a greater fool tomorrow. That's how prosperity is created. ;-)

To me the move in Apple looks like blow off top similar to the one that occurred in netflix last year. The last big shorts are getting killed. When all the shorts lost their money then the move down will start.

treatmentreport says

To me the move in Apple looks like blow off top similar to the one that occurred in netflix last year. The last big shorts are getting killed. When all the shorts lost their money then the move down will start.

I think Netflix had a P/E of like 60-80 at the peak... It's business model has a VERY questionable future that is beholden to content providers rates negotiations. And margins will prove thin.

Apple meanwhile just recently hit 16 P/E... It's business model is very proven.. and the money it makes off "content provider" negotiations are just icing on the cake of it's massive hardware profits.

thunderlips11 says

Also, Apple's margins are big and fat, not small. I think the iPad has a 60% margin.

I said they made it so their competitors margins are forced to be thin. They've done genius things like buying up all the flash memory supply for years and IPAD glass screens for years... So competitors can't get decent rates for supplies from factories, because they are all busy with multi-year contracts with Apple.

RIMM can't afford to commit to long term factory contracts on "unproven" tablets.

Apple has the competitors balls in a vice. They are all scrambling to compete with Apple in the high-end tablet market and failing miserably.

can't really compare PEs in blow off tops between 18B and 550B company. For example the blow off top in gold (total value of 10 Trillion) was only 20% last year. Gold is probably more similar to Apple. Most people that hold it would not sell the asset as they are emotionally connected to their investment.

I own a number of Apple products and one of my best friends (who is brilliant) worked there for quite some time. Many of my friends who have been life long Apple users could not predict the success that Apple would have just two years ago and now everyone on this board is acting that they understood this company all along. That's why I am questioning if there are other factors involved that people are not looking at such as the run up in student debt of 500B in the last three years. Surely a nice chunk of it must have made it into iPads.

When you buy a Put, whoever sell you that Put will short the stock.

BoomAndBustCycle says

I said they made it so their competitors margins are forced to be thin. They've done genius things like buying up all the flash memory supply for years and IPAD glass screens for years... So competitors can't get decent rates for supplies from factories, because they are all busy with multi-year contracts with Apple.

Samsung makes the A4 and A5 chips used in iPhones. Samsung sells tens of millions of Smart Phones a year, with most comparable models selling at or below the iPhones' price. That doesn't seem like Samsung's margins are being squeezed to me.

Droid Phones are made by a variety of firms all in competition with each other, there is only one iPhone maker. That explains the generally cheaper price.

Not to mention that Droid Phones have the dominant market share and have had it for quite a while. Again, if their margins were being compressed, how do they sell so many Droids versus the iPhone?

If there's margin compression, it'll happen to Apple, rather than Samsung who can manufacture not only enough chips for Apple, but its' own products.

treatmentreport says

That's why I am questioning if there are other factors involved that people are not looking at such as the run up in student debt of 500B in the last three years.

I take your point that the runup seems suspect. Is it WebVan or is it something more substantial? Only time will tell.

As I said before your student debt idea lacks merit if I had to pin it on something it'd be this is the "IT" stock, the way Cisco was in the late 90's. Unfortunately I didn't use stop sells on CSCO and held it stubbornly thinking it'd come back, until I eventually recognized defeat and took my losses like a man. Learned that lesson.

Or you could follow another line of reasoning. Say that Gold & commodities are now "so 2 seconds ago" and the hot thing is piling into Tech stocks again. Perhaps AAPL is just at the right place & time to be THE most visible target of that pile of Monopoly money looking for a property to land on.

Meanwhile I trade the tape. It's got momentum. Bought a call yesterday, sold it today, enough cash to buy a new iPad. I keep an eye on the exits at all times, and that is all any player in the casino needs to do. Don't be a buy&hold sucker.

Apple is the total opposite of a bubble stock because it grows profits so much it can always catch up to the stock price.
Apple is simply the most successful, profitable, respected, largest company on earth.
There is no reason to believe that the sales and profits will slow down until everyone on the planet has an Apple product. This could take a while.
Call me a buy and hold sucker.

Apple has always been almost cultlike...... People devoted to Apples style and products.... They have great margins, cheap labor and a "gotta have it" huge group of fans