Apple grows more attractive
Last fall, a student stopped by my office and told me he thought Apple’s stock was going to rise. He had a few thousand to invest and he asked me if he should buy Apple. At the time, the stock was trading around $172 per share.
I wanted to scream, “NO!!!!” But, as a professor it is my rule (and probably a real rule in some document I never read!)not to give stock picks or investment advice. Instead, I walk students through examples to show what they would need to happen for this to be a good decision.
First, I had to ask him how much money he had, what rate of return he wanted to earn and how long he was looking to hold on to the stock. The answers: $10,000, IDK and IDK.
The last two questions are very important and you should know at least one of them before investing! Here’s what I went through with the student, first about money and second about risk.
About money: With $10,000 all invested in Apple at $172 per share, you could afford 58 shares. For every $1 per share increase in the price of Apple you can make $58. To make a 10 percent return, you would need Apple’s shares to rise over $17 per share.
About risk: I can’t recall what Apple’s beta was last October but, today it is close to 3.0. That means, Apple’s stock is three times as risky (from a systematic perspective) than the overall market.
What this combination meant to me: expensive and very risky. I would never recommend putting all of your money into one stock, particularly one with such a high price and high risk, especially with no set goal or investment horizon in mind.
Needless to say, he left my office feeling a little less certain about Apple. So, what happened? Well, for the next two months, Apple’s stock fluctuated between $150 and $203, before closing the year at $198. Since then, Apple has fallen as low as $85 and today, it closed just under $102.
In January, my student was probably cursing me, now he’s thanking me.
While I thought Apple was too expensive then, it is much more attractive now. My short list of likes on Apple: no preferred stock, no long term debt, $3.5 billion in profits last year and potential to help PC owners see the light of MAC.
Apple’s fiscal 2008 ended in September, so soon we will see how the most recent year treated Jobs & company.
Either way, always set some type of goals prior to investing and please don’t put all of your eggs into one basket!
Tags: apple, MAC, PCRelated Stories
POSTED IN: Corporate, Investment, Market, Technology, Uncategorized
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