AAPL: What could have been… and what can be.

Jason’s VTI post brings to mind a time when I, half-jokingly, told him that out “safe-spot” could be Apple Computers. It seemed like a great idea at the time, back in the fall when Apple and Google seemed to have no ceiling and it seemed foolish not to get on the late 2000’s super-tech company train. Looks like Jason was right about VTI being the way to go… in the unlikely circumstance that we would have invested in AAPL four times, we would have taken 4x the hit that this company has handed us.

 

It sounds foolish (like I may be giving myself an excuse for being so gung ho on AAPL) but the good/bad news is that a decent amount of the drop hasn’t been balance sheet related. Back in 2004, Steve Jobs had a touch of the… err, pancreatic cancer and the company conveniently forgot to tell investors. Not that this is illegal (the SEC ruled that officers’ health was not an essential factor for disclosure) but it should be! Here we are in mid-2008 and Jobs’s health is again in question. The result? A smaller scale (and certainly less rational) version of the same type of uncertainty that has weighed down the financials ever since the Bear Stearns collapse.

 

Call me crazy, but I think it’s ridiculous that news, or rather a lack thereof, regarding Jobs’s health and small iPhone glitches should have such sharp effect on a solid company. I think we are beyond the point where Apple Computers would be considered a speculative investment. Products like the iPod, iPhone, and MacBook have established themselves as “bare necessities” to a large group of American teenagers and 20-somethings, creating steadily increasing earnings figures for Jobs’s cult computer company.

 

Even so, in this fearful market, there may be reason for concern… and concern (while quite concering!) can always be flipped into profit. Bear with me here:

 

Imagine Steve Jobs’s health is a legitimate concern. Let’s be honest, with the way Apple execs sidestepped questions regarding this pivotal issue during a quarterly conference call, it’s not a big stretch. We sell now, avoiding the TREMENDOUS hit that AAPL would absorb after an announcement that Jobs may be stepping down due to health concerns. Regardless of whether or not we buy back into AAPL a few months down the road after it settles in at a more stable price, we miss out on a possibly huge setback in working our way back even on this investment.

 

Just a suggestion, but I think it could be a while until we see AAPL hit 200 again. I don’t know about you, but when it happens I’d prefer to have more shares.

Let’s Start at the Beginning, a Very Good Place to Start

One of the few ideas we’ve enacted that I can claim to have come up with myself is a risk rotation system. The idea (as I originally presented it) was that we would each year have three risk levels: Safe months (where we would invest in a broadly based index fund); medium risk months (where we would invest in a well known individual company in good shape); and high risk months, where we would invest in something crazier.

In truth, mainly due to our lack of research skills we haven’t been that comfortable taking bigger risks and we’ll probably wait on that until we have learned more about judging a company’s quality (reading 10-q and 10-k reports/balance sheets).

So after we accepted this plan the first investment decision we had to make was what we would use as our broad based index fund. We ended up deciding on VTI, for a number of reasons, mostly related to the super broad base “The fund employs a passive management strategy designed to track the performance of the MSCI US Broad Market index, which consists of all the U.S. common stocks traded regularly on the NYSE, AMEX, or OTC markets”, the super low expense ratio of .07%, and the low turnover rate of 4% annually.

In addition to those concrete reasons I have a fault of pushing companies more for their historic value, which unfortunately doesn’t speak too well to their future performance. I’m a big fan of John Bogle, as a result I not only wanted to go with a Vanguard index fund, but I wanted to go with one that was about as diverse as could be.

To date the only problem with VTI was that the high per share price often meant we had to make slightly smaller investments in it leaving a little extra money sitting around. This was enough of an issue (given the already small size of our investments) that we discussed for a while the possibility of switching index funds, but when VTI split that ended that discussion.

Here are a few of links about VTI:

https://personal.vanguard.com/us/FundsSnapshot?FundId=0970&FundIntExt=INT
http://caps.fool.com/Ticker/VTI.aspx?source=ifltnvsnq0000004

What we’ll post.

We’re going to be having a number of different series of posts. To start things off we’re going to write a post about each of the positions we currently hold, including links to information about the companies, and if we remember some of the reasons we chose that company over others we were considering. When the initial bunch of companies are gone through that will become a regular post as we choose new companies.

 

After we catch up on those we’ll write posts about the atypical stock transactions we’ve already experienced (bankruptcy, bought for cash, bought for stock, stock split, and participating in an IPO). As more of those types of learning experiences happen I’ll probably write about them in the present tense.

 

Mixed in with those we’ll likely post some opinion about how things are going, both with the club, and the economy as a whole.

 

Also I’ll probably post numbers about how the club is performing at least weekly.

How we decide.

So to give you all an idea, here is how we decide what to invest in:

 

At any given meeting we choose a sector we’ll be investing in the month after next and through the month we each (most of us) do some research, and suggest a company or two for that sector. Then through the second month I follow the suggested companies (loosely) and remove any that have become clearly no longer a good idea. There are some restraints/pressures on the risk level but so far we mostly ignore those.

 

Anyway when we finally meet we usually have a list of 4 – 6 companies we are considering. We discuss each of them, and I bring to the meeting a list of statistics comparing them, along with a little bit about their narrative. After at least briefly discussing them all we start narrowing the field usually until we pick one company. Sometimes we split and invest half into each.

 

It’s important to our group dynamic that most if not all decisions are made by consensus. We have clearly decided (even in writing) that we will vote to decide what to do if consensus cannot be reached, but I’m not sure that that has ever come up. We have voted multiple times, but we did it more as a tool to gauge people’s thoughts than to make a decision.

Work in progress

One might think as this club approaches a year old that most of the work to keep it running would be complete. And that’s more or less true, but this week has been busy. In addition to starting on a new website (this) a new excel sheet to track our progress (which we will switch to for year two in September), we also are meeting to fill out forms en route to switching to a new brokerage firm.

On the upside we’re in the black again, which at least I find makes the work much easier.

A new way for me to rant, with potentially many readers, and more likely none.

Okay, this is an as of yet unofficial blog for the small investment club Columbus Dividends of which I am a member. If this allows me to easily post all the data I want club members to be able to easily see we’ll probably use this rather than paying elsewhere for a website.