Wednesday, October 20, 2010

Just call me butter...

'cause I'm on a roll. Seriously, my portfolio's doing great at the moment. I have to seriously look at taking some profits off the table. 

I came across this USAToday article today about the risk and reward of investing in a stock, specifically Apple.  With all do respect to the author, I just don't think all of this is necessary.  They talk about the compounded rate of return, "Apple's trading history back to 1984, we see the company generated an average annual compound rate of return of 31.7%".  That's all well and good, but right above that the article says "Shares of the company are up 49% this year,".  That to me is more important than what they were doing back in 1984. I've been a follower of Apple since about 1990.  They were a totally different company in 1990 and 1984. Steve Jobs was there, then he left, now he's back. I don't see the value in tracking what they did the last 25 years.  Let me move on.

The article says "To get that much better return, you had to take a lot of risk. You accepted risk — standard deviation — of 69 percentage points. So, by investing in Apple, you took on 341% more risk to get a 213% higher return."  I don't even know what they're talking about. "Measure the stock's discounted cash flow." Again, huh? Apple had a butt kicking quarter - again - and they've got about $40 billion in the bank. Next.

"Compare the stock's current valuation to its historical range. BetterInvesting's Stock Selection Guide can help. If the company can increase earnings more than 18.1% a year the next five years, as analysts expect, that would put the stock in the "buy" range. " Um, they just rolled out a new Macbook Air, they have Mac OS X Lion coming out next summer, the iPhone may be rolling over to a new provider in the states come Christmas, the iPad is running out of stores... Need I say more?

Finally, the article says " An old adage on Wall Street is that the crowd is usually wrong. But Apple continues to disprove just about every tenet of investing, as the crowd has been continuously right on this one." Sooo, all the stuff you wrote in the article is bullpucky?  Again, I think the only people who are worried about measuring risk, compound rate of return and increased earnings over the next 5 years are "the experts". My portfolio is up 49% since last year and over 100% the last 2 months. And I have no clue what the 25 year chart looks like for anything I own.  'nuff said

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