Just for fun

Let's do something just for fun:

You've decided to buy some Apple shares as your 2009 New Year's resolution. After heavy partying you wake up with a hangover on January 1 2009, market's are closed, you wake up again on January 2 2009, your head is clear, your thinking is clear, ok semi-clear and you decided to buy some shares. For 3 months.

So from Jan 2 2009 to April 1 2009 - you had 63 trading days.

During these 63 days volume of AAPL shares trade was around 1.7 billion shares, of course Apple has only 933 million shares, therefore some shares were trade more the once in these 63 days. That's quite normal.

Let's assume you have unlimited amount of money or that you are very well connected with some sovereign wealth funds from the Gulf, which is like the same thing as having unlimited cash available.

A professional buyer, fund, investor with the best brokerage houses would be able to buy around 30% of the daily volume. Let's not forget these were fearful days, beginning of 2009, nobody would think about stocks during this period, but you are bold enough to execute your purchases and you start buying on Jan 2 2009. Since 30% is really an amazing result, let's you buy every day half of that, or 15% of the daily volume, your are a semi-professional, or you just play golf too much and you are lazy to buy every trading day. Your average is 15% of the daily volume.

1.7 billion shares were traded in these 63 days. Just to be safe let's say that you managed to work with a volume of only half of that or 850 million shares. For whatever reason you could "only" buy 15% of 850 million shares. Or you bought 127.5 million AAPL shares.

OK, sounds good. How much did you pay for them.

Let see the average price in these 63 days:

Highest trading day price on average was $94
Lowest trading day price on average was $92

Let's say you were only buying everyday when the prices peaked within that particular trading day. There for you paid $94 per shares.

$94 x 127.5 million = $12 billion with all the costs.

You decided to keep the shares until Valentine's day on 14 February 2012 and you wanted to sell it all in couple of weeks.

The closing price today was $509.46 - you started selling at $500. And for the next 3 weeks the share price doesn't really change much, so your average selling price was let's assume $500.

127.5 million x 500 = $63.75 billion

Your profit 63.75 - 12 = $51.75 billion in just 3 years.

If anybody would do this they would be labelled as the greatest investor of all the time. For sure. $51 billion in 3 years, just by investing is impossible.

Why nobody did it? Well, probably because it was difficult for people to foresee that Apple stock would be worth over $500. However, there is another story on the other side of that coin. People were fearful. People were thinking that the world would come to an end. Yes, they did, I remember watching interviews with analysts from CNBCN, CNN saying this was almost worse than 1929. Anyways, people were fearful and nobody would buy anything. Few did, but nothing to such a scale like described above.

Here is the trick (there are no tricks, but this is really a trick, in a way):

90% of people would rather buy AAPL share today at $509.46 than 3 years ago at $94. I am 100% sure of that. People operate by greed and by fear. Again, we are coming back to the same point. 2009 was fear, 2012 is greed. This is so cyclical already my head is spinning.

Learn how to say no to AAPL share at $500 and learn how to say YES when a good company like that is trading below $100.

Happy investing.

Damian

Apple $509 / $475B market cap

Apple, Inc. has a market cap of $475 billion.

On January 19 2012 their market cap was $400 billion. The value of the company grew by $75 billion.

Why?

Let's try to analyze.

Apple's revenue for 2011 was $109 billion. Let's say in 2012 it will be 10% higher, so $120 billion. Let's be really optimistic and let's say they will have a phenomenal year with total revenue at $140 billion.

There are 366 days in 2012. So we have to divide $140 billion by 366 days = $383 million daily revenue. Wow. Just realized how much that is. OK. Their profit margin in 2011 was 24%, let's again say they will really learn how to cut costs in 2012, and they will improve their profit margin by 25% (this is almost impossible, but, let's just give the best possible scenarios.) Their profit margin will be 31.25% - let's round that to 32%.

So what do we have here. We have $383 million daily sales and profit margin of 32% so that comes to $122.50 million daily profit for Apple, Inc.

OK - now from January 19 2012 to February 14 2012 have had 26 days.

26 x $122.50 million = $3.2 billion

OK, so the company now has $3.2 billion more cash than on January 19th. Using the best possible scenario for Apple, Inc. the company has made $3.2 billion, but the total value of the company has increased by $75 billion, well the market says so.

What I really think, and it is not a secret right now. Somebody is crazy to buy Apple stock at $420 and keeps buying it until it is $510 - whoever these people are, they are not thinking clearly and I doubt they know what they are doing. If it continue like this Apple needs a week to have a market cap of over $500 billion or half a trillion US dollars. Now that is insane and it has no justification whatsoever for such inflated price.

Today, my son celebrated his 2nd birthday, we had balloons, but none of them was so big. For the next birthday party, I will just buy some stocks.

Learn how to say NO. Happy investing.

Damian

Facebook / Apple

With Facebook's upcoming IPO it could value the company at $100 billion and Apple's market cap at $444 billion we are now entering "dot.com/tech bubble version 2.0"

Apple is a great company and does amazing products and Facebook is an equally amazing company that provides great service for their users. That said, they are not worth over half trillion dollars. We have just entered into second phase of craziness and this will correct itself at one point. Seeing Apple's share at almost $480 is a scary sight - It was $78 in January 2009.

Happy investing....

Damian Kosutic