Saturday, February 13, 2016

A Useful Tool for Apple

       One useful tool to track for Apple is the cash adjusted P/E.  The Google sheet below downloads the necessary material and performs the calculation.  Currently, the tool shows that the cash adjusted P/E is less than six.  The only major American company that comes close to this level is Citi - a bank still trying to recover from the past financial crisis and fear of the next.  As I have noted in this blog, Apple does face some headwinds, but a cash adjusted P/E of less than six is indicative of a hurricane.  This makes the number worth following.
https://docs.google.com/spreadsheets/d/12cI71ApcH9kmiABJbLP_PC_pvkRPLThD5GeE8mLbw6g/edit#gid=0

Wednesday, February 10, 2016

Central Banks: Show Me the Inflation!

     The Fed rightly sets its goal for inflation at 2%.  Positive inflation has a number of benefits.  Most importantly, it allows for more flexible monetary policy by opening the door to negative real rates to stimulate the economy.  Furthermore, price increases can have a positive impact on sentiment.  For years, the Fed and other central banks have espoused this target but where is the inflation?  In the U.S. the CPI rose less than 1% last year.  In Japan, prices actually fell.  In the countries of Northern Europe there is fear of deflation.  So if the central banks maintain these targets, I say, "show me the inflation."

Tuesday, February 9, 2016

Peak iPhone?

       In order to do the valuations that I post here, I feel I have to get my hands dirty.  For that reason, I currently own 7 cell phones, 6 tablets, 5 "watches," and 7 computers.  All of them current models from various manufacturers.  What has all this expenditure done (other than upset my wife)?  I have found what I call Apple creep in which I progressively use more and more Apple products.  It turns out this "creep" is due to the unique integration of hardware and software.  I have basically given up on Android phones for personal use.  I still have 4 current models, but only for evaluation.  I found the software upgrade process to be an immense uncertain pain.  The only exception was the Nexus 6p which is easier to upgrade because Google keeps that phone clean.  But the Nexus is a niche product and the hardware is inferior to Apple.  The same is true of the tablets.  All my iPads are current and consistent.  My Android tablets are a mess with various versions of software.  They in a drawer except when I pull them out to make comparisons.  Because Apple has run the table on phones and tablets, by necessity I favor the 2 Apple watches I own over all other wrist devices.  But even without this integration, the Apple watches stand on their own feet as the best devices in the wrist class.  Finally, with regard to computers, even though much of my software is Windows based, the computers of choice are MacBook Pros and 5k iMacs.  They have fantastic build quality and allow me to run either OS with little hassle.  Furthermore, I find myself slipping into the Mac OS more frequently because of consistency with all the other devices.
     As I start to use services like Apple pay, for which ease of use and consistency across devices is particularly important (we are talking moving money here), I find myself even more drawn to Apple.  The simple fact is that a point that Steve Jobs stressed long ago - consistency of hardware and software is essential if one wants to make the best easy to use products.  In my view, that observation becomes even more true as the types of devices proliferate and the functions they perform become more critical.  And Apple has an immense lead in that regard.
      All this says to me that peak iPhone is 180 degrees wrong.  Apple is building exactly what Warren Buffett likes to see - an entire menu of great products and software that interact in a way that builds a moat around all of them.  To put my money where my blog is, my small hedge fund made, what for it, was a very large purchase of Apple shares at $95.  It will be an exciting year ahead.