Apple Turnover

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It wouldn’t be a proper reckoning if we didn’t mention the world’s newest most powerful and important company ever. Well actually, Apple Inc. didn’t become the world’s most important company ever overnight. But it DID achieve the highest market capitalisation of any publicly listed company ever!

Hip hip!

Hooray!

In 1999, Microsoft briefly reached a market value of US$620 billion. It was all downhill after that. The bursting of the tech bubble followed. Microsoft’s operating system and web browser may be on nearly every desktop in the world. But today, Microsoft is a puny $257 billion company and the desktop is a lot less important than the tablet or the handheld device. Apple, on the other hand, is a $623 billion global titan; bigger, even, than energy behemoth Exxon Mobil at $406 billion.

Apple, a Beast of a Stock

Source: StockCharts

Microsoft’s 1999 valuation nicely coincided with the height of one bubble. Apple’s valuation doesn’t so neatly fit into another bubble category. And for the record, Apple sells for about four times 2010 sales of $148 billion. It trades at a forward price to earnings ratio of 12, which of course depends on 2013 earnings that will be driven by the latest version of the iPhone, due for release on September 12th.

Is the iPhone really more valuable than oil? Is it more valuable than gold? Well, look around yourself next time you’re in public. If you’re not on your iPhone checking stock prices, sending a text, or playing a game, chances are somebody else is. And we’re not counting Blackberrys, Androids, or the Samsung Galaxy.

In the modern world, our experience with life is mediated through devices. Apple has created a handheld interface through which a lot of people choose to interact with the world and with each other. There’s a lot of money in that. But the real value isn’t the hardware. It’s that people like interacting with the world in the way that hardware makes possible.

By ‘real value’ we mean that the market place has spoken on what people find useful and valuable. But remember, preferences change over time. That’s why prices (and share values) change over time too.

And maybe Apple’s success is also a testament to the selfishness and self-centredness of the modern world (or at least the ‘me’ focus). Cheap energy and cheap credit afford people the luxury of leisure time. Our mobile phones are the way we squander our leisure time. Or dominate at Angry Birds and Words with Friends.

In any event, a mobile phone is just a tool. It is not money and it is not energy. And you have to think that real money and real energy are going to have their day in the sun again.

Regards,

Dan Denning
for The Daily Reckoning Australia

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Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Steven Stewart Gold Coast
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Steven Stewart Gold Coast

Thanks for being here and spreading such informative financial information which is anything but boring actually fascinating how things really work and the complexities and why this failed and that didn’t incredible reading!! Thanks for trying to help people get themseles out of the Poverty traps.

John Schleider
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I was a subscriber to Dan Denning way back when he had Strategic Investment. I checked into the Daily Reckoning for the first time in years. Just curious, but what happened to all his hair? He doesn’t look like he did in his photo back then at all.

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