Why Much of My Portfolio Is In Apple Stock

I understand the premise of a diversified portfolio. I just don’t agree with it.

If I can buy more of a stock that delivers a 40% return in a year, why would I buy a Vanguard S&P 500 exchange-traded fund that delivers a 15% return?

If I like the way a particular company operates, the value they bring to the world, and the ethical standards they uphold, why would I put my money into other companies that behave in ways I don’t agree with?

I tell my friends that it’s always a good day to buy Apple. While I’ll tell people that I like other companies, Apple is the one company that I always tell people I feel 100% confident about. I decided to take a moment to share why.

My career is in marketing, and I am sharing this opinion article to convey my thoughts with you and to get your feedback. I’m curious to hear what you think in the comments, especially if you see anything differently or you see something that I’m not seeing.

Next, I’ll share the 7 reasons why I always recommend buying Apple – no matter what day or year.

1. Brand

People prefer Apple products over alternative products by other companies. Apple has some of the highest profit margins in the tech industry because of how much customers love and trust the brand including the buying experience, the product quality, the customer support, and the overall ethos of what Apple represents.

Apple’s brand enjoys a cult following. Fans follow rumors for years and watch hour-long commercials (AKA keynotes) for Apple latest product announcements.

Apple’s products deliver on their promises. Apple and Samsung both vie for the highest customer satisfaction scores in phones and computers. Apple products tend to have long lifespans, and Apple’s business model allows them to provide quality customer care without hurting their bottom line.

Importantly, fans share their enthusiasm with others. This expands the number of people who will buy Apple products. This phenomenon is documented in numerous surveys that track “net promoter scores”. These scores are designed to assess how frequently customers recommend Apple products to their friends, or talk positively about Apple products. In most surveys, Apple ranks among the top 5 brands in this measurement.

2. Ecosystem

It’s easy to get locked into the Apple ecosystem. It’s extremely convenient to switch between devices knowing that your calendar appointments, notes, photos and more are all accessible. When buying a new product, almost no matter what features a competitor launches, its hard to peel an Apple user away from the familiarity of Apple’s design aesthetic, user-friendly interfaces, and user controls.

Once you experience the quality of an Apple product, you’re also likely to feel comfortable buying more Apple products. In many cases, customers keep buying new products year after year when Apple releases meaningful product updates.

Success builds well on success, and Apple’s thriving ecosystem explains why Apple has consistently delivered high sales growth, especially when they launch a quality product in a new category.

3. Service Businesses

Many analysts base their assessments of Apple’s value on Apple’s past performance and current performance. That is to say, they measure Apple on its ability to sell iPhones – its primary revenue stream.

Apple has substantial opportunities to exploit their customer relationships by selling all kinds of services to their hardware users, and they’re in the process of doing that with the Apple One plan and their individual service subscriptions.

Because of how many people own iPhones and Apple devices, Apple can sell news, virtual fitness classes, music, TV, games, cloud storage, financial services, and possibly more. Best of all, in most cases, they don’t have to produce very much. They just take a huge commission from content creators in exchange for curating and promoting other people’s work to their 1 billion active iPhone users. It’s an amazing business.

Services are a rapidly growing part of Apple’s total profits. Despite this, Apple isn’t priced like a startup company with a high P/E ratio of 100+ to reflect this growth opportunity.  In my view, the stock is underpriced based on this alone.

4. Apple Car

No one knows if Apple will produce a car, but the rumors have been piling up for years. Apple has made investments in automotive technology and reputable sources have reported innumerable details. The details they’ve shared make perfect sense based on the strategy Apple usually takes with product launches. Essentially, Apple is waiting until they can perfect a new technology so that they can “go big” with their launch. In this case, a central part of the launch will be a next-generation battery that will significantly increase the distance that an electric car can travel between charges.

Tesla spent years underpriced because people believed the vision might flop. (Today Tesla’s stock is valued at 10x+ the stock price that it was stuck at for most of the 2010s.) Apple has a history of delivering quality products that please customers. Apple has a historical strategy of waiting until a product’s technology is sufficiently advanced that it can wow customers and blow away their first-mover competition. The electric car market has already been tested, and it’s gaining enormous traction with consumers. (It’s also a vital part of the word’s efforts to reduce climate change.) The auto industry an international market with enormous global demand. Finally, Apple again is a brand that millions of people love and trust. All things considered, if Apple makes a car, it will almost definitely be a hit product. It’s also a product that allows for high profit margins, which is extremely important.

Despite the potential for a Tesla-like realization of this value, investors don’t seem to value Apple like a startup with amazing growth ahead of it. They’re still focused on iPhone sales. They’re focused on the past, not the future.

5. Virtual Reality

Search Google for “virtual reality Apple” on any given day and you’ll see that Apple has recently received a new patent or acquired a new VR technology company. VR is almost certainly part of the future in how people will work and play, so it’s good to see that Apple plans to be a part of this space.

I wouldn’t be surprised if people complain that Apple is taking too long to launch a VR headset. Remember, in the Tim Cook era, Apple usually takes a few years to learn from competitors before jumping into a new space. This has been the case with wearables, streaming, and wireless earbuds. I would expect Apple to take the same approach with VR.

When Apple does launch a VR headset, they’ll earn hefty commissions from the VR games and apps that people will use on their headsets. The VR market may turn out to be smaller than expected. Or it could turn out to be the next big thing. There are business and entertainment applications for VR in almost every industry. Either way, there’s almost no doubt that VR will provide Apple ample room for growth.

If you’re a believer in augmented reality and its many potential uses, you might see a future here as well. Search Google for “augmented reality Apple” and you’ll see that Apple is making plenty of investments in AR.

6. Leadership

Apple either cares, or gives the appearance of caring, about the world as a whole.

Apple has committed to reaching net 0 carbon emissions by 2030, 10 years ahead of Amazon (albeit 23 years after Google). They speak up and take meaningful action when they see prominent societal injustices. They aim to improve conditions for workers in their supply chains (although there is probably room for improvement no matter what they do). They curate content to prevent false information from spreading online. They don’t give money to politicians or political action committees. They’ve also acted somewhat to curb technology addiction with their Screen Time features.

Tim Cook himself is a pretty upstanding guy. He donates regularly to charity and plans to donate his entire fortune. In 2014, he became the first CEO of a Fortune 500 company to come out as gay, sacrificing his privacy to offer comfort and encouragement to gay young people (who are frequently bullied, sometimes until they kill themselves).

Tim wrote,

“If hearing that the CEO of Apple is gay can help someone struggling to come to terms with who he or she is, or bring comfort to anyone who feels alone, or inspire people to insist on their equality, then it’s worth the trade-off with my own privacy.”

When angel investors and venture capitalists invest in a growing business, most say that they’re investing in the leader, not the business. While I often wish that Tim Cook would pursue new ventures more aggressively, he has brought the company to an exceptional financial position by gradually fulfilling the potential of Steve Jobs’s innovations and gradually branching into new markets. Furthermore, his personal character has shaped Apple into a more ethical company than most in the S&P 500.

I like to believe that my investments minimize harm and promote good. Apple consistently demonstrates that it does this better than most companies.

7. The P/E Ratio

Every buying decision needs to be based on price. With some major caveats, investors usually judge a stock’s price based on its P/E ratio.

A P/E ratio, or price-earnings ratio, is the share price (the money you pay for a tiny ownership stake in the company) divided by the earnings per share (your personal bit of the company’s annual net profits, based on your ownership stake).

Many startups and high-growth companies have astronomical P/E ratios. Tesla’s P/E ratio is north of 1,000. Enphase’s P/E ratio is usually 150+. Amazon’s and Nvidia’s are typically 70+.

In contrast, Apple usually has a P/E ratio hovering  around 35. This means that a share of Apple stock is essentially valued at your share of the next 35 years’ of the company’s profits.

Professional investors appear to value Apple like a bank – a company that is already close to its final company size, where growth is inevitably slow. In my opinion, this view doesn’t take into account the massive sales volume Apple can achieve by aggressively marketing its various digital services to its 1 billion active iPhone users. It certainly doesn’t take into account the multi-trillion dollar addressable markets that Apple can gain market share in should it launch an Apple Car and a high-end VR headset with an associated VR app marketplace.

If you want a dividend-paying stock, Apple provides a nice benefit to shareholders here as well. Currently Apple yields a 0.63% dividend. While the $1 in cash that you’ll earn per share at the end of the year isn’t much now, this payment should increase exponentially as the company’s stock value grows.

Conclusion

I recommend that anyone investing in Apple be comfortable with volatility. Like any stock, if a surprise recession hits, the stock could lose 30% or even 50% of its value. When the stock does dip, I suggest you avoid waiting for signs of a recovery and instead buy more while the stock is down if at all possible. Apple has a massive pile of cash (usually $200 billion), a diversified business, exceptional brand power, many competitive advantages, and a solid growth trajectory. It should recover from any sudden dip that might occur.

Even if you suffer a rare cataclysmic loss (likely due to a recession that would hit most every other stock in the economy), you can expect to recover your losses within a year if you hold thanks to Apple’s 40% annual growth rate, not to mention the additional growth you can expect as the market stabilizes following a market shock.

Apple is one of the absolute safest stocks, a dividend-paying stock, and a high-growth stock that for some reason isn’t valued by others as highly as it should be given its current and future opportunities. I expect it will continue growing at 40% a year for a long time to come, consistently outperforming the market.

This post is intended for friends and connections. Please let me know what you think and why in the comments.

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