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Bailing on Apple
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By nativity
March 7, 2007

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Hi all,

I'm out of AAPL. It's been a nice ride these last few years, but for me the rides over. At least for now. I thought I'd just explain why.

Most of the time I'm a value investor. I'm looking for low P/E primarily, and high yield secondarily. When I find them I look if there's a reason that the market is fairly marking the company down, and if not, I buy.

However, from time to time I buy into companies that I think have what I call a good story that most people haven't heard. Companies that I think have a lot of growth in them. This isn't growth investing as such, because I'm not looking at companies that are already growing and jumping on board. This is the odd exception where I think I've spotted them before most other people.

When I bought my G4 iMac and G2 iPod I thought they were brilliant, and it was only a matter of time before others caught on, and Apple would grow rapidly. And so I bought AAPL.

But now?

1) Every man and his dog knows how brilliant Apple is. Thus AAPL must be priced for that.

2) Most people that would reasonably be in the market for an iPod seem to already have one. That's not to say that the iPod won't continue growing, there are always other countries that haven't bought yet, replacements etc. I just think that the steepest part of the adoption curve is over.

3) I'm not confident of Apple TV. I'd want to see a PVR facility in there so I can grab shows for free from TV, but it doesn't have one. It just seems to be a box that enables you to buy content from iTMS.

4) iPhone is no iPod. iPod was being released into a market that hardly existed. It was an opportunity for a strong company to make a good solution and educate the public and so dominate it. But the phone market is already mainstream, and has a huge variety of very good products. The iPhone is obviously going to sell. But it's not going to be the phenomenon that the iPod is.

5) I see Mac continuing to grow and make inroads into the PC market. But it's always been slow. Maybe in time OS X will dominate. I hope so. But it's not something that's a strong enough possibility to gamble on.

6) Vista has flopped and MSFT is taking a tumble. Although this is good news for Apple, MSFT will take the tech sector down with them, and AAPL may get dragged down too. This has happened before.

7) This is the most significant one for me choosing to bail out now. I want the money to invest elsewhere. I've become convinced by the peak oil argument, and think it's happening right about now. Coincidentally oil companies are good value right now with low P/Es and good dividends. If my feeling for peak oil recession might be on the way, but with oil companies going against the trend. If I'm not right, then I'm buying oil companies cheap and they should outperform anyway.

I still think Apple is a fantastic company, and want the very best to happen for them, not least because I love their products. But the stock is just too expensive now for me to keep holding when I have other places that I want to invest money. If AAPL rises from here, but oil rises quicker, that will be the outcome I'll like the best.


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