"And what it all boils down to
Is that no one's really got it figured out just yet,
'cause I've got one hand in my pocket
And the other one is playing the piano."
-- From "One Hand In My Pocket," Alanis Morrissette, 1995

Smartphones could be the greatest gift to investors this side of the Taxpayer Relief Act of 1997, and we're absolutely right to give miles of column space to covering smartphone developments.

But we're doing it all wrong most of the time. Let me bust a few misconceptions today.

There are more players than you might think
Judging by the headlines flying around, it's easy to believe that Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) are the only smartphone stocks that matter: iPhone vs. Android in a glorious battle to the pain. When there's a hot new Android model on the horizon, the first question on everyone's mind is, "How does it stack up to the iPhone?" Whenever Apple does something right in the mobile market -- or something stupid, for that matter -- it's back to, "That's terrible (or great) news for Google!"

Those are important questions, but far from the paramount value markers of either stock. Consider these facts the next time you see a simple "iPhone vs. Android" headline:

  • The iPhone gets most of the press in North America, but handset makers like Nokia (NYSE: NOK) and Research In Motion (Nasdaq: RIMM) have greater global market shares. It is a mistake to base your investment decisions on one small slice of the worldwide smartphone market.

  • Neither Apple nor Google lives and dies by mobile phone successes. Google Nexus One sales are a sliver of its revenue; the Android platform itself is open-source software and royalty-free at its base level. Remove the whole shebang from Google's income statement and you really won't notice the difference. For Apple, iPhone sales now account for 40% of the company's quarterly revenue. While I agree that they're an important part of Apple's business, the company has other product lines in more mature markets that could protect the company from any downturn in smartphone spending. Try that trick with Palm (Nasdaq: PALM) and you'll see ... Well, I guess that's an experiment in progress, actually. It's not a pretty sight.
  • Most importantly, you can invest in growing smartphone sales without buying the phone makers themselves; only 17% of all handsets sold in 2009 were smartphones, leaving lots of virgin ground to cover. Every Web-browsing phone needs a great processor, often provided by pink sheets resident Samsung or the very investable QUALCOMM. With its strong licensing on all 3G handsets, QUALCOMM stands to benefit no matter what company is making the phones. As long as smartphones are booming the company is raking in revenue. Cypress Semiconductor (Nasdaq: CY) is making a name for itself with controller chips for the omnipresent touchscreens and Cirrus Logic (Nasdaq: CRUS) is becoming the standard choice for high-quality sound circuits. These companies have a laser-like focus on the smartphone market and they show up all across the map. Whatever specific handset might become the next belle du jour, there's a more than fair chance that you'll find Cypress and Cirrus aboard.

What it all comes down to
Look, I own Google shares and I sort-of love the Android platform. But I bought those shares long before Android was a glimmer in Google's eye, and would continue to hold if Android dies a horrible, rusty death tomorrow. I suspect that the same is true for many an Apple investor and iPhone fan, though their portfolios would suffer some disfiguring scars from an event like that.

Some people say that the Android will kill the iPhone, take over the world, put away my dishes, and teach my kids ancient Greek when it's all said and done. Even if all of that happens, Android sales will never be more than a blip on Google's radar. And you're kidding yourself if you think the iPhone alone is supporting Apple's world-class market cap these days.

Apple investors are betting that Steve Jobs has more rabbits to pull out of his turtleneck, and that most of those bunnies will hop circles around whatever competition might be in place. It happened with the iPod, it happened with the iPhone, and perhaps it could happen with the iPad. But what happens when Jobs runs out of tricks? The more Apple keeps growing, the more it becomes a story stock, and every story has to end somewhere. Do you want to live with that risk?

Where do we go from here?
I'm as guilty as anyone of those polarizing headlines mentioned earlier. That stops now.

So I posit that Google loves smartphones, but doesn't have as much invested in who makes them or what software they run. Apple is a risky way to enter this market. A more sensible way to grab a chunk of this hyper-growth market is to go after the smaller players who live inside phones of every brand. If not Cypress and QUALCOMM, I'm sure you can come up with other candidates on your own. The comments section below eagerly awaits your thoughts on smartphone investing strategies.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Why must National Poetry Month always end so soon? Nokia is a Motley Fool Inside Value selection. Cypress Semiconductor and Google are Motley Fool Rule Breakers picks. Apple is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.