As you may have noticed by now, we're in the middle of Apple Week here at the Fool. Over the past several days, you've learned about why Apple
Problem is, what impressed me -- and I mean no offense to my Foolish colleagues or to Apple aficionados when I say this -- was the sheer, blinding force of the faith investors are placing in Apple. Consider just a few of the comments made in the company's "defense":
- Eric Jhonsa: "The easy money has been made in Apple."
- Rick Munarriz: "I love Google, but Apple is the real prize. They're both trading at next-year earnings multiples in the teens, but Apple's the one growing faster these days."
- Alex Dumortier: "As I began comparing Apple and Google
(Nasdaq: GOOG), I was struck at how similar their numbers look, in terms of expected growth ... (16.5% for Apple vs. 18.5% for Google), valuation (forward price-to-earnings multiple: 16.1 vs. 15.1), net cash position ($23.2 billion vs. $26.5 billion), and profitability (net income margin: 21.1% vs. 28.3%)."
Bedazzled by Apple
Now here's the weird part: Eric and Rick both prefer Apple over Google. Yet Eric says the easy money has been made on Apple. Rick says Apple is growing faster, but then Alex points out that it isn't, really.
To the contrary, Alex cites a whole string of numbers that show Google is growing faster, is priced more cheaply, has more cash, and earns more profits per dollar of revenue. Yet he's the most pessimistic of the bunch, hedging that "both stocks look reasonably attractive at current levels."
That sounds crazy -- but not uncommon. It's almost as if my fellow Fools have been bewitched by the company's story, or perhaps brainwashed by the relentless beat of the iPods drumming their eardrums. By any metric you choose, Google beats Apple hands-down ... yet people still insist that Apple's the better investment.
Apple is not magic
News flash: It's not. Apple may have cast a spell over investors, hypnotizing them into believing it can do no wrong, not now, not ever -- but history begs to differ. History, you see, is replete with examples of do-no-wrong stocks that went nowhere but up, until they came crashing down. Companies like:
UnitedHealth redefined health insurance. It rolled up tiny players into an industry behemoth and created scale advantages never seen before. But ultimately, UnitedHealth and its CEO were undone by greed in its stock-options backdating scandal. The company hasn't been the same since.
Like UnitedHealth, AIG once seemed to occupy the right spot at the right time. For decades, its business only got bigger, and its stock price went nowhere but up. AIG even held pride of place as a staple investment of legendary value investor Shelby Davis. However, as so often happens, the company overreached for profits, and the whole company came crashing down.
Back in the tech arena, Apple's lately been crowing over how it vanquished Microsoft in the market-cap race earlier this month. But there, too, lies a tale. It's a tale of an industry giant that got too big and too powerful, and painted a bull's-eye on itself in the eyes of regulators, competitors, and plaintiffs' attorneys alike. Microsoft mocked Apple for its tiny market share and insignificant products, only to find that its own size had made it the favorite target for attacks from the Vast International Hacker Conspiracy, while "insignificant" Apple was given a pass.
It was in Microsoft's own success that the seeds of its downfall were sown.
Bigger is badder
I could go on, of course. I could describe to you how Google itself has run into similar troubles with regulators as it waxed dominant in search, or how Intel
But I think you get the picture. I don't know exactly what will trip up Apple, but odds are, something will, eventually. As Microsoft's market share wanes, and Apple's waxes, cracks in the latter's security armor are emerging. The stench of monopolism in the iMpire has antitrust vultures circling. As for CEO-specific risk, Steve Jobs nearly got stuck himself in the backdating swamp. And of course, there are all the concerns over the state of Jobs' health -- and less-than-candid disclosures relating to it.
And that's my bear thesis in a nutshell: History repeats itself. Those who fail to study it, and who place blind faith in an Apple that can do no wrong, insisting it's as good an investment as any other, when the numbers loudly shout that it is not, are bound to lose money.
Apple is not magic. It's only tech. And all tech ultimately fails.
What's your best defense against black magic? A good-sized margin of safety. Learn how to find it.