In Search of the Perfect Investment

You can make a lot of money with this column and my recommendations — so long as you do exactly the opposite of what I tell you to do.

At least with Apple, which I shorted.

But not with Boeing, which I bought when “blood was flowing in the street,” and which is up strongly in pre-market this morning after nice earnings.

Win one. Lose one. Maybe.

There are lessons here:

1. Don’t believe anything you read or hear.

2. You need to do your own thinking and your own research.

3. Picking stocks is gambling. We are buying and selling on the basis of seriously incomplete information.

4. Timing plays a huge role. I was up big on my Apple short yesterday afternoon. I was about to pull the trigger on it and cover it. Then the phone rang and then and then. Well, I missed my opportunity.

5. You got to be on top of this stuff every waking second. You want to play, that’s the way it is — but it’s a not a life.

A life is running your own business. A life is thinking up new products. A life is being nice to customers. Yesterday, Kit Burns of Doorways Villa Vacations (click here) sent me a sweet greeting card, “Welcome. home. I’m so happy you enjoyed your stay (at our villa in Tuscany). Here is your security deposit in full. Please come again.” And we will. She’s sweet and diligent to deal with — in sharp contrast to 99% of real estate brokers.

The Apple earnings results last night were a mixed bag. Depending on whom you read.

+ The New York Times: The news on Tuesday was not particularly good for Apple: revenue was flat, profit was lower, and even the sales of iPads were down.

+ The Wall Street Journal: Demand woes bite Apple. Apple proved Tuesday there is still demand for its venerable iPhone in the face of stiff competition, though it is running into trouble convincing consumers to buy its other gadgets. Apple and its rivals have faced increasing concern that the consumer electronics industry’s boom over the past few years has started to slow. That phenomenon was evident in Apple’s latest quarter, when it sold 20% more iPhones than a year earlier, but more customers opted for cheaper models. The iPhone’s average selling price is falling as people buy older models. Its other offerings fared worse. Sales of the company’s iPads dropped 14% from a year earlier and demand for Macs fell 7%, contributing to a second consecutive quarter of declines for Apple’s overall revenue and profit.

+ Seeking Alpha: Apple Inc.’s Slumping Unit Profits Spell Trouble. Apple (AAPL) beat earnings forecasts, sending the stock up in after hours. It’s always good to surpass estimates, especially after the glum action in Apple over the last 9 months. However, the quarter is not all roses. I’m concerned about the declining average profit Cupertino makes off each iDevice. Apple’s unit profit (operating income/number of devices sold) has been in an unhealthy downtrend for the last 5 quarters. Back in January 2012, unit profits maxed at a sensational $263. Since then, Apple’s unit profits have been skidding. The chart below documents the decline comparing y/y quarters. The first quarter of this fiscal year dropped 18% y/y (blue ); the second plunged 28% (red); and the most recent quarter’s unit profit (green) dropped 21% to $170, a level not seen since October 2010. The chart is here.

Transcript of Apple’s earnings call is here.

Apple reported second quarter earnings of $7.47 per share, above analysts’ consensus estimate of $7.30, and revenues of $35.3 billion, above expectations for $35.04 billion. The company offered revenue guidance for the next quarter in the range of $34-37 billion, compared with analysts’ estimates for $36.97 billion. Shares are higher in pre-market trading.

My readers had some great comments on the site yesterday:

Jack
Harry you are my contrarian indicator
Thanks for your Apple short!!! I went long when I read that, up $20,000. thanks again

bruuno (Guest):
Harry you are a wise man no doubt but when it comes to a company like Apple, it may be a long time before the dust settles and we get a clear picture of the company’s future and direction. Trying to ascertain such insight now from an investment perspective could be very risky. And you don’t need me to tell you to ignore the razzers and political geniuses who comment here..

A friend at last night’s dinner shows me how he carries the mini iPad in his pocket and uses it as a phone — with Skype and a headset. He gets data from Verizon and from WiFi he finds on his travels. I do like the mini-iPad, but I’m waiting for better screen.

Jim Chanos said “short CAT.” I reported that here. He was right.

Maintenance.

1. Change your AC filters. Vacuum or wash your condenser coils.

2. You need a wheel alignment — especially if you haven’t aligned them for several thousand miles. A wheel alignment is cheaper than new tires.

Harry Newton whose main “action” today will be to sell his Puerto Rico GO (general obligation) muni bonds. PR’s finances suck. It could go the way of Detroit.

Meantime, the muni bonds market is in turmoil. Great bonds paying a Federal tax-free 5% are available — if you search. Be careful of high brokerage commissions — most commonly called high markups. You need to shop around. Do some old-fashioned bargaining.

John Oliver is doing a great job on the Daily Show while Jon Stewart is away. I  continue to like Stephen Colbert, who follows The Daily Show. Colbert is talented and clever. I actually enjoy his gigantic ego. 11PM to midnight, Monday through Thursday. If that’s too late, you can watch the shows on their web sites.