It’s Time to Short Apple

NEW YORK CITY - JUNE 23: Apple Store logo on June 23, 2012 in Ne

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It’s Time to Short Apple
Shae Smith, Melbourne, Australia,

Originally Published 13 September in Money Morning

If you ever thought of buying Apple [NASDAQ:APPL] shares but didn’t, don’t bother now.

Instead, get ready to watch the stock price fall.

Because I reckon from here, the stock price is going to trade sideways for a long time…before falling.

Just like Kodak did when it was a listed company. The 80s were a good time for Kodak shareholders. The stock price gained 97% between 1980 and the market crash of 87.

Then, after trading sideways for five years, it started to take off again. Almost enjoying the same share price success as the 80s. Then the dotcom bubble burst and people realised that Kodak hadn’t invested in the future.

Digital photography was taking over and Kodak was still making its biggest dollars from film.

The same thing is about to happen to Apple. Although unlike Kodak, I don’t think Apple will get their second wind.

It might sound crazy, telling you Apple’s glory days are over. After all, for three years in a row Apple’s net sales enjoyed double digit growth.

Net Sales double digit growth from 2009–2012

Source: The Great Depression of the 1930s: Lessons of Today
Click to enlarge

However, Apple only managed a 9% increase in net sales in 2013. Competitors have finally caught up. But even though Apple only had single digit growth in sales, it did have a tidy $37 billion net profit for 2013.

The 2013 financial results are a sign of things to come. Sure, it’ll make bucket-loads of money. Apple will still be a profitable company, but insane sales growth won’t happen anymore.

And that’s because Apple’s game-changing tech days are behind it.

The recent product launch confirmed this.

After the much-hyped launch, Apple stocks closed up only 0.37% higher at the end of the trading day. We’re told that, historically, this is normal. According to an analyst from Piper Jaffray, the share price tends to start rising before new stock hits the shelves.

Never before — at least in the digital age — have there been so many leaks about an Apple product. We knew everything we needed to know about the phones and a little about the smartwatch before the release.

Really, CEO of Apple Tim Cook was just up on the stage confirming the names of the gadgets.

Apple normally shrouds everything in secrecy. In years gone by keeping things quiet was the marketing plan. Not so with the most recent launch. Almost every day for two months there’s been a news story on the next Apple product.

In case you’ve had the good fortune to be living under a rock and have missed all the hype, the game-changing tech Apple launched was a slighter bigger iPhone 6, and a ‘phablet’ size iPhone 6. Oh and one more thing…there’s a smartwatch!

Apple is also delving into the realm of payment systems. But rather than using technology that already exists, like near field communication (NFC), Apple have launched Apple Pay. You can use your phone to pay for things and have your very own digital Apple wallet.

Hello Apple. Welcome to 2010.

Frankly, I thought Apple’s products were underwhelming. And I was surprised to hear about Apple Pay. You know, considering the recent hacking scandal.

Now, I don’t know about you, but I don’t feel great about the fact that Apple can’t even keep pictures safe in the iCloud. So I’m not sure you want them to be in charge of your money.

After the hack happened, Apple said their system wasn’t compromised. Therefore, the problem isn’t Apple’s. However, this journalist was able to crack his Apple account using $200 software and Apple’s verification methods.

The thing is, I don’t think bad press and a same-same-but-different product is going to hurt the company’s bottom line.

Simply because Apple have a loyal fan base.

Any user of Apple products will tell you just how darn easy they are to use. And they never break down.

Perhaps more importantly, every Apple product syncs seamlessly. Apple call it their ecosystem.

To and you me, this ecosystem of flawless connecting software and devices make you never want to leave. You know every new Apple product you buy will slot into your iOS life. You don’t have to think how things will work. Just plug in and go. And don’t even bother with the user manual.

Then there’s the smug, ahead of the game feeling you get when using intuitive Apple products.

By the time you’ve made one or two Apple purchases, it becomes too hard to leave.

The CEOs at the top know the hard work is done. They’ve won the crowd over with simple devices and ridiculously-clever-but-easy-to-use-software.

In other words, Apple now relies on the consumer to be sucked further into the Apple bubble.

From an investing point of view this is bad news.

Like many retailers before them, they make the mistake of relying on the brand to do the work. And the customer being too lazy to go elsewhere.

As an investors this means the big gains in Apple stocks have gone.

Apple makes its money these days not by creating groundbreaking products, but by making it harder for you to leave the Apple ecosystem.

Sure they’ll still be a profitable company. But I’m simply saying you shouldn’t expect the big returns from Apple any more. The big surprises have gone. This means the big gains are gone too.

Folks, it’s time to short sell your Apple shares. Or at least watch from the sidelines as they trade sideways for the next decade.


Shae Smith
Port Phillip Publishing

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The Daily Reckoning
The Daily Reckoning offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, The Daily Reckoning delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, The Daily Reckoning is published in 7 countries with a worldwide readership of almost 1 million people.

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