Wednesday, May 16, 2007

Emotion And The "Apple-holics"

So, I noticed something very odd the other day. Folks take their "apple-holism" very seriously. I wrote a rather benign (I though at least) piece while having coffee the other morning about my observations on the new iPhone coming out June 11th. You can read it here. If you do not care to read it, the gist was that a $600 cell phone will not be a hit. I went on to explain some of my issues with it and finished by saying Apple (APPL)should "cut the price to $299 and you may have something". The responses were so vitriolic you would have thought I cast aspersions on the virtue on their mothers, grandmothers and sisters all at once.

My favorite response was "you should be banned from the internet for being so gay. f-off dork face." Well said, thanks for thinking that one through. If you are going to be insulting, let's at least put some originality in it and make it a good one. My four year olds can do better.

Enough of that. Another response was "the overwhelming # of pro-iPhone responses received (i.e: potential iPhone buyers) thus far should make you want to reevaluate your opinion on the iPhone." Actually is doesn't. If it does anything, it makes me question the lofty prices level of Apple's stock and the potential pain investors may be in for. Here is why.

In January I wrote when Google was approaching a new all time high, "You should expect the multiple for Google to contract to a range commensurate with its growth rate. If that rate this year is around 30% expect the pe to shrink to about 30 times 2007 earnings. That give us a price for Google shares of about $450 a share. In other words, Google is overpriced. It is priced for its current growth rate, when that rate slows as it must (law of large numbers) its price will fall.

Google is a great company with a wonderful product, its stock is just too expensive."

The responses I got from "Googlites" was no different that what I got from Apple holders yesterday. Just substitute the company name and the gist of them is the same. I am an "idiot", "just do not get it", "Google hater" (this despite me saying it was a wonderful company). I followed up with another piece days later and this one recently. The responses have all been the same.

Google (goog) share price since first article? Down $40

In February I penned this article on Starbucks (SBUX). Again the responses where the same as the Google and Apple episodes. Again I said "great company with a wonderful product, it's shares are just overpriced". No matter to the "Starbazis", I apparently hate everything Starbucks (not true). Then in March, Founder Howard Schultz penned a memo echoing the sentiment in my first post. This is not to say Mr. Schultz reads me but to say that my piece was not the apparent Starbucks bashing article it was accused of being. For a current take on Starbucks, visit my friends at the StockMasters

Starbucks share price since first article? Down 20% to a 52 week low

What is my point? Emotion. It is the enemy of every investor. When people feel so strongly about a company or a product that any criticism of it causes such anger and hostility, they no longer have the ability to take a rational look at their investment. I have no position or ever have had any in any of these three companies so the eventual outcome of my opinion means nothing to me financially. That also allows me to look at them for what they are, not what they have been. It is ironic that most of the responses I got focused on the past and have a blind confidence in the future. I also find it funny that almost to a person they have owned shares in the companies "for years", "since they went public" or "at $10 a share". Has nobody bought them in the last 5 months? Who is buying and selling all of those shares everyday? Another favorite response has been "people like you have been saying stuff like this for years." Okay, I do not know what "like me" is (I will assume it is not complimentary), but I have not said anything before Jan. and Feb. 2007.

Comments like those are my very point. Warren Buffet said "if you spend too much time looking in the rear view mirror, you will not see the potholes coming up in the road". Google and Starbucks shareholder have either missed them or refused to see them.

Now to the "Apple-holics". The Motorola razor at the time it was introduced was "cutting edge" cell phone technology and priced at $500 and up. It did not sell well until it could be bought for $199. The original iPods were only moderately successful until they could be purchases for under $200 and then $100. The Blackberry recently saw its share of the pda market go from 4.9% to 20% in one year. What happened? I can now get one for $99 rather than the $299 they were previously sold for. They have not increased their share of the business (professional) market, (which is 50%) they have increased their consumer market. No matter what anyone thinks, consumer cell phones are a commodity and in commodities, price rules. Especially with an almost disposable product like a cell phone that gets washed, dropped, sat on, lost, etc.

It should be noted that I gave Apple huge credit saying that they do not even need to go down to $99 for the iPhone to sell, just $299. That does mean I see value in it, just not $600 worth. Will it sell, to the "apple-holics" yes, to the masses? Not at $600.

One also has to consider that it will only be available initially to the 47 million people who have ATT wireless. According to the presentation, Apple expects 10 million units sold by the end of 2008(it will be available in Europe at the end of 2007 and Asia sometime in 2008). So we expect 1 in 4 AT&T users to have a iPhone? Won't happen....

So once this rolls out how do we judge my accuracy? Easy, anything less than the 10 million units sold at $600 by then end of 2008, I win. If they drop the price? I win. If they ditch AT&T prematurely and open it up to all wireless companies? Partial win for me as they will do this eventually anyway. If they sell more than 10 million at $600 by then end of 2008? Tell me how wrong I am, you will know where to find me.

With the emotion these folks exhibited, there has to be froth in Apple shares. No matter who runs a company, they make a mistake and stumble. Steve Jobs and Apple will eventually. With the froth and emotion in the shares and with the shareholders, that eventual mistake will result in a very hard lesson for people. Unbridled exuberance on the way up results in desperation on the way down and those two emotions make for a wild ride for shareholders.

I will repeat a comment I gave to almost all the Starbazis, Googleites and Apple-holics after their comments and email. I hope I am wrong if you are a shareholder, I do not want people to lose money and hopefully potential investors have resisted the urge to buy and have saved themselves significant losses and maybe some current ones sold out and saved some angst. I hope I am, it is just that, I haven't been.

I await the angry emails and comments. You can call me whatever you want, just not "wrong" :)

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