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Niether. I would buy out BRK, FFH and BH.  ;D

 

If I were to remain a passive investor, I will go with apple, these guys will overtake MSFT in market valuation, it is only a matter of time.

 

If I am like Biglari, I would go for Microsoft for its free cash flow.

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Apple seems to be the riskier choice, though certainly the more exciting.  Many who have competed against Microsoft come to learn that as a rule, they keep coming, and usually get things right by about the third generation of whatever (and they have the cash to keep investing in order to iteratively improve). 

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I wouldn't go anywhere near either stock, certainly for a buy-and-hold strategy. With the advent of free operating systems, Microsoft could easily be moving into the territory of a "buggy-whip" stock. This may, or may not have already happened, who knows. All I do know, is that you'd have far more safety holding something like JNJ, KFT or KO with all the upside that a growing economy would bring.

 

As for Apple, that is most definitely in bubble territory. Ok, they make neat little gadgets, but one of these days, someone will invent an UberPod and people will decide that Apple is no longer cool. When that happens (and it will happen some day), Apple certain won't have the second largest market cap in the world.

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As for Apple, that is most definitely in bubble territory. Ok, they make neat little gadgets, but one of these days, someone will invent an UberPod and people will decide that Apple is no longer cool. When that happens (and it will happen some day), Apple certain won't have the second largest market cap in the world.

 

Actually, Apple is doing a pretty good job in digging moats around computing. If the iPad ends up being successful, they will essentially have a tollbooth around computers - you want to develop an application for the iPad? You have to give a cut of every sale to Apple. This is pretty powerful.

 

They have already had a lot of success with doing this on the iPhone and iTunes. You use the devices to control the market and then put tollbooths around the devices via your content/application markets. With iAds they are poised to get a commanding share of the advertising market that is created for mobile phones.

 

I'm not saying Apple is a value stock. It isn't. But calling it a bubble stock is premature. The company generates something like $10B+ in FCF per year, has $41B in net cash (more than Microsoft). It is pretty telling that Apple doesn't even consider Microsoft as much of a competitor. Apple views Google as its biggest competitor as both companies are betting on computing shifting towards mobile devices.

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Actually, Apple is doing a pretty good job in digging moats around computing. If the iPad ends up being successful, they will essentially have a tollbooth around computers - you want to develop an application for the iPad? You have to give a cut of every sale to Apple. This is pretty powerful.

 

They have already had a lot of success with doing this on the iPhone and iTunes. You use the devices to control the market and then put tollbooths around the devices via your content/application markets. With iAds they are poised to get a commanding share of the advertising market that is created for mobile phones.

 

I'm not saying Apple is a value stock. It isn't. But calling it a bubble stock is premature. The company generates something like $10B+ in FCF per year, has $41B in net cash (more than Microsoft). It is pretty telling that Apple doesn't even consider Microsoft as much of a competitor. Apple views Google as its biggest competitor as both companies are betting on computing shifting towards mobile devices.

Where are the moats though?

 

The Ipod/Iphone itself has no moat, any new technologies they introduce can be copied by anyone else. Itunes has no moat - there's nothing stopping anyone buying content elsewhere. The Ipad (so far) doesn't appear to have any applications or user base that would give it a moat. Apple personal computers are still only used by a tiny fraction of PC users - ironically, the only moat Apple have is amongst designers; it's just a shame they're a flyspeck of the entire market. The Apple brand is strong - but it only takes one crappy gadget and it could irreparably be damaged.

 

I guess what I'm trying to get at, is that the dominance that Apple currently have could easily be fad-ish. If you want to talk about a moat - take a look at Coca-Cola. 100% years old, easy to understand and so deep that you would actually have to purposely destroy. Apple can only dream of having a moat like that.

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The Ipod/Iphone itself has no moat, any new technologies they introduce can be copied by anyone else. Itunes has no moat - there's nothing stopping anyone buying content elsewhere.

 

On the contrary, the Apple "system" of Device (be it iPod, iPhone, iPad) & Distribution (iTunes & app store) does currently have a fairly large moat. For users, the switching costs are fairly high if they have already purchased music/video/apps for their current device. I think Apple will eventually need to open up their system a bit and make it more modular but right now the barriers to entry remain high. Technology-wise, Microsoft's Zune was about up to par with the iPod when it came out -- but they were unable to put a dent in Apple's sales for the reasons stated above. 

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I would say apple and coke have the same kind of moat. There is nothing stopping anyone from making a cola product either. The brand is the moat. Moats in my opinion have nothing to do with years. If they did GM & Ford would still be on top.

 

I get what you are saying about brand moats. They are kind of scary. But shunning apple for coke - moat wise doesnt make sense. I prefer legal or market related moats. I prefer when people have no choice in terms of using the companies product. Such as a parking garage in a busy medical center, or certain lines of insurance that must be purchased from only a few market players. My favorite moat is legally we are the only game in town.

 

Apple is past the fad point. I have never owned an apple product and use a sandisk MP3 player that has much more features for half the price of a comparable ipod. I have been getting laughed at for 4 years and still get laughed at today.

 

As mentioned above and in the kobo thread Its Ipods or nothing, Iphones or Black berrys, and eventually Ipads and .... Once they have the device they will have tollboth businesses around mobile phones, and pad like devices. They will also have content with advertisers, books, music, and video downloads.

 

I wouldnt bet on apple with my money, but only a fool would bet against it or Microsoft. Apple and Microsoft could just as easily use stock to buy there ways to a cheap PE.

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To figure out AAPL's moat, just ask, what was MSFT's moat?  Users and Applications.  They have the high end user, and they have developers writing applications for them.  One guy I know wants to get rid of his iPhone but can't cause it has the applications he wants.  On top of that there is design, and the fact that they are the only company that builds the whole widget.  That's a huge advantage in consumer electronics since they can control the whole experience.

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Apple is not a 'bubble' stock. It actually still seems pretty cheap to me. It's selling for 19 times conservative estimates of future earnings, and if you strip out their cash, it's only at around 12x earnings...for a companies that just posted 90% growth in earnings. And that's not an 90% earnings increase similar to a lot of other companies that had terrible earnings the year before. It's 90% growth over record earnings a year ago. 

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There was a time back in the 80's where you didn't dare buy anything other than a Sony Walkman.

 

Sony walkman didn't have a lock on the cassette format.  Nor was there a distribution moat since you couldn't connect to them all via the network. 

 

Here's the thing.  Apple has 3 big businesses:  Computers, iPods, iPhones.  The first it owns 3-5% marketshare, the second it dominates, the third it has a lot of smartphone market share, but that's a small small percentage of the total mobile market share.  ie.  In spite of it's size, there's still room for growth.

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There was a time back in the 80's where you didn't dare buy anything other than a Sony Walkman.

Sony walkman didn't have a lock on the cassette format.  Nor was there a distribution moat since you couldn't connect to them all via the network. 

Here's the thing.  Apple has 3 big businesses:  Computers, iPods, iPhones.  The first it owns 3-5% marketshare, the second it dominates, the third it has a lot of smartphone market share, but that's a small small percentage of the total mobile market share.  ie.  In spite of it's size, there's still room for growth.

 

Apple doesn't have a lock on the mp3 format.  I have a creative ZEN mp3 player and I have 1400 songs on it, none of which were purchased from Apple.  They certainly don't have any lock on either the hardware nor the music formats.  I regularly listen to audiobooks and podcasts on my ZEN without a problem. In fact I don't think I've ever regretted not paying more for an iPod.  Especially since buying my kids iPods recently and seeing that they don't do anything my ZEN doesn't.  I've owned creative mp3 players for about 5 years now, my current one is my 3rd.  Every time I look to buy a new one, they are always cheaper than iPod. 

 

As for computers I have the best of both worlds, a dual boot system running Ubuntu Linux and Windows XP.  I do almost everything on Linux and I have winXP running on that same machine for when there is something I need windows for.  For instance, I prefer photoshop to Gimp and the software my company requires me to use to work from home only runs under Windows (which is strange, because my machine at work that I log in to runs Red Hat Linux). Anyway buying a Mac would mean spending many hundreds more on a machine that would be quite a bit less functional than my current set up. 

 

I understand that for some, form>function, and these people are willing to pay more for boutique-type products that look good. That is a legitimate market niche that Apple has taken advantage of.  It isn't for everyone though, and they certainly don't have a "lock" on anything.

 

--Eric

 

 

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There was a time back in the 80's where you didn't dare buy anything other than a Sony Walkman.

Sony walkman didn't have a lock on the cassette format.  Nor was there a distribution moat since you couldn't connect to them all via the network. 

Here's the thing.  Apple has 3 big businesses:  Computers, iPods, iPhones.  The first it owns 3-5% marketshare, the second it dominates, the third it has a lot of smartphone market share, but that's a small small percentage of the total mobile market share.  ie.  In spite of it's size, there's still room for growth.

 

Apple doesn't have a lock on the mp3 format.  I have a creative ZEN mp3 player and I have 1400 songs on it, none of which were purchased from Apple.  They certainly don't have any lock on either the hardware nor the music formats.  I regularly listen to audiobooks and podcasts on my ZEN without a problem. In fact I don't think I've ever regretted not paying more for an iPod.  Especially since buying my kids iPods recently and seeing that they don't do anything my ZEN doesn't.  I've owned creative mp3 players for about 5 years now, my current one is my 3rd.  Every time I look to buy a new one, they are always cheaper than iPod.   

 

As for computers I have the best of both worlds, a dual boot system running Ubuntu Linux and Windows XP.  I do almost everything on Linux and I have winXP running on that same machine for when there is something I need windows for.   For instance, I prefer photoshop to Gimp and the software my company requires me to use to work from home only runs under Windows (which is strange, because my machine at work that I log in to runs Red Hat Linux). Anyway buying a Mac would mean spending many hundreds more on a machine that would be quite a bit less functional than my current set up. 

 

I understand that for some, form>function, and these people are willing to pay more for boutique-type products that look good. That is a legitimate market niche that Apple has taken advantage of.  It isn't for everyone though, and they certainly don't have a "lock" on anything.

 

--Eric

 

 

 

And you represent like what -- 1% of the population? Most people I know aren't using Ubuntu or Zen mp3 players. I'm know for sure that there is a segment of the population that refuses to drink carbonated beverages, does that make Coca-Cola's moat weaker? No, because most people drink some kind of coke product.

 

The fact remains that Apple has leading market shares in mp3 players and smart phones. In addition to that, they pretty much monopolize content distribution for those devices. Yes, you can hack other solutions out, but most people do not do that.  That is the big difference between what Apple is doing versus what the Walkman had. The Walkman was purely a music player, they didnt get a cut of the content.

 

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There was a time back in the 80's where you didn't dare buy anything other than a Sony Walkman.

Sony walkman didn't have a lock on the cassette format.  Nor was there a distribution moat since you couldn't connect to them all via the network. 

Here's the thing.  Apple has 3 big businesses:  Computers, iPods, iPhones.  The first it owns 3-5% marketshare, the second it dominates, the third it has a lot of smartphone market share, but that's a small small percentage of the total mobile market share.  ie.  In spite of it's size, there's still room for growth.

 

Apple doesn't have a lock on the mp3 format.  I have a creative ZEN mp3 player and I have 1400 songs on it, none of which were purchased from Apple.  They certainly don't have any lock on either the hardware nor the music formats.  I regularly listen to audiobooks and podcasts on my ZEN without a problem. In fact I don't think I've ever regretted not paying more for an iPod.  Especially since buying my kids iPods recently and seeing that they don't do anything my ZEN doesn't.  I've owned creative mp3 players for about 5 years now, my current one is my 3rd.  Every time I look to buy a new one, they are always cheaper than iPod.   

 

As for computers I have the best of both worlds, a dual boot system running Ubuntu Linux and Windows XP.  I do almost everything on Linux and I have winXP running on that same machine for when there is something I need windows for.   For instance, I prefer photoshop to Gimp and the software my company requires me to use to work from home only runs under Windows (which is strange, because my machine at work that I log in to runs Red Hat Linux). Anyway buying a Mac would mean spending many hundreds more on a machine that would be quite a bit less functional than my current set up. 

 

I understand that for some, form>function, and these people are willing to pay more for boutique-type products that look good. That is a legitimate market niche that Apple has taken advantage of.  It isn't for everyone though, and they certainly don't have a "lock" on anything.

 

And you represent like what -- 1% of the population? Most people I know aren't using Ubuntu or Zen mp3 players. I'm know for sure that there is a segment of the population that refuses to drink carbonated beverages, does that make Coca-Cola's moat weaker? No, because most people drink some kind of coke product.

The fact remains that Apple has leading market shares in mp3 players and smart phones. In addition to that, they pretty much monopolize content distribution for those devices. Yes, you can hack other solutions out, but most people do not do that.  That is the big difference between what Apple is doing versus what the Walkman had. The Walkman was purely a music player, they didnt get a cut of the content.

 

Actually I only represent about 0.00000001493% of the population of this planet, as do you.  But I was just saying that they have a lot of market share, but they don't have a lock on anything.  It is appropriate that you used Coke as an example. No one would say they have a lock on the beverage industry. Like Apple, they have a strong brand with large market share, but that is all, anyone who wishes can drink carbonated beverages their entire lives without ever drinking a Coca-cola product.  All it would take to bring it down is a few years of poor management or, in Apple's case more than Coke, a change in technology that the company was late implementing.  Steve Jobs isn't going to be around forever, and Apple almost disappeared the last time they lost him.  Also, holding on to your brand in the rapidly changing technology sector is a completely different thing to holding on to it in soft drinks. When is the last time you saw an Admiral TV?  W.E.B. doesn't invest in tech companies, because of the unpredictability.  I'm a digital ASIC design engineer and I don't invest in tech companies either for the same reason, not even the one I work for.

 

--Eric

 

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There was a time back in the 80's where you didn't dare buy anything other than a Sony Walkman.

Sony walkman didn't have a lock on the cassette format.  Nor was there a distribution moat since you couldn't connect to them all via the network. 

Here's the thing.  Apple has 3 big businesses:  Computers, iPods, iPhones.  The first it owns 3-5% marketshare, the second it dominates, the third it has a lot of smartphone market share, but that's a small small percentage of the total mobile market share.  ie.  In spite of it's size, there's still room for growth.

 

Apple doesn't have a lock on the mp3 format.  I have a creative ZEN mp3 player and I have 1400 songs on it, none of which were purchased from Apple.  They certainly don't have any lock on either the hardware nor the music formats.  I regularly listen to audiobooks and podcasts on my ZEN without a problem. In fact I don't think I've ever regretted not paying more for an iPod.  Especially since buying my kids iPods recently and seeing that they don't do anything my ZEN doesn't.  I've owned creative mp3 players for about 5 years now, my current one is my 3rd.  Every time I look to buy a new one, they are always cheaper than iPod.   

 

As for computers I have the best of both worlds, a dual boot system running Ubuntu Linux and Windows XP.  I do almost everything on Linux and I have winXP running on that same machine for when there is something I need windows for.   For instance, I prefer photoshop to Gimp and the software my company requires me to use to work from home only runs under Windows (which is strange, because my machine at work that I log in to runs Red Hat Linux). Anyway buying a Mac would mean spending many hundreds more on a machine that would be quite a bit less functional than my current set up. 

 

I understand that for some, form>function, and these people are willing to pay more for boutique-type products that look good. That is a legitimate market niche that Apple has taken advantage of.  It isn't for everyone though, and they certainly don't have a "lock" on anything.

 

And you represent like what -- 1% of the population? Most people I know aren't using Ubuntu or Zen mp3 players. I'm know for sure that there is a segment of the population that refuses to drink carbonated beverages, does that make Coca-Cola's moat weaker? No, because most people drink some kind of coke product.

The fact remains that Apple has leading market shares in mp3 players and smart phones. In addition to that, they pretty much monopolize content distribution for those devices. Yes, you can hack other solutions out, but most people do not do that.  That is the big difference between what Apple is doing versus what the Walkman had. The Walkman was purely a music player, they didnt get a cut of the content.

 

Actually I only represent about 0.00000001493% of the population of this planet, as do you.  But I was just saying that they have a lot of market share, but they don't have a lock on anything.  It is appropriate that you used Coke as an example. No one would say they have a lock on the beverage industry. Like Apple, they have a strong brand with large market share, but that is all, anyone who wishes can drink carbonated beverages their entire lives without ever drinking a Coca-cola product.  All it would take to bring it down is a few years of poor management or, in Apple's case more than Coke, a change in technology that the company was late implementing.  Steve Jobs isn't going to be around forever, and Apple almost disappeared the last time they lost him.  Also, holding on to your brand in the rapidly changing technology sector is a completely different thing to holding on to it in soft drinks. When is the last time you saw an Admiral TV?  W.E.B. doesn't invest in tech companies, because of the unpredictability.  I'm a digital ASIC design engineer and I don't invest in tech companies either for the same reason, not even the one I work for.

 

--Eric

 

 

It's a bad idea to put broad rules like refusing to invest in tech because WEB does not. After the bubble burst, there were a number of tech companies with clean balance sheets, tons of cash, that were trading below NCAV. These were wonderful opportunities. Even Apple traded around that level.

 

I'm not saying Apple is a buy right now, or that I'd ever invest in the company, but your blatant refusal to acknowledge their moats is pretty questionable. You can toss out old names of tech brands all you want, most of them are apples to oranges comparisons. Just like the Walkman, Admiral TV may have sold a lot of TVs in the past, but they weren't also getting a cut of the distribution as well.

 

I just don't see how you can ignore all the switching costs they put in place - if you buy an iPhone and decide to switch to a Blackberry, the money you spend on applications is down the drain. Same if you get an iPad or even iPod (which limits music transfers) you don't totally have control over what you buy and as a result you become more tethered to Apple. It's pretty powerful.

 

I can understand that there are some people in tech who absolutely disdain Apple and their cultish-following. But as a value investor, you should be willing to set aside your biases and give props to a good business model when you see one.

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I've ever regretted not paying more for an iPod. 

 

...

 

Every time I look to buy a new one, they are always cheaper than iPod.   

 

...

 

Anyway buying a Mac would mean spending many hundreds more on a machine that would be quite a bit less functional than my current set up. 

 

Realize these three statements acknowledge the existence of a moat.    The ability to sustain higher than average market prices over several years looks like a moat to me.    Think of Apple as a luxury product maker, not unlike BMW.  You don't buy a BMW on pure utility value.  Same with Apple products.

 

IMHO, of course.

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I've ever regretted not paying more for an iPod. 

Every time I look to buy a new one, they are always cheaper than iPod.   

Anyway buying a Mac would mean spending many hundreds more on a machine that would be quite a bit less functional than my current set up. 

Realize these three statements acknowledge the existence of a moat.    The ability to sustain higher than average market prices over several years looks like a moat to me.    Think of Apple as a luxury product maker, not unlike BMW.  You don't buy a BMW on pure utility value.  Same with Apple products.

IMHO, of course.

 

I'm not saying they don't currently have a moat. I'm just saying that in technology the moats are never as wide or deep or as easy to maintain as in other market segments.  Coke will still have its moat 10 years from now, Apple may not. Coke will still have its moat 30 years from now, Apple will almost certainly not.

 

--Eric

 

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I'm sorry, but you simply cannot compare the Apple moat to Coca-Cola.

 

Coke has been around since forever, it's simple to understand, it hasn't changed in 100 years and has been completely dominant since inception. Coca-Cola hasn't been improved upon in a century, can you honestly say that the Iphone or Ipod won't be improved upon or made obsolete in the next century?

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It's a bad idea to put broad rules like refusing to invest in tech because WEB does not.

 

That isn't the reason at all. I mentioned Buffet as an example of someone else who has the same opinion as I do, not that I blindly follow him.  I'm in the industry and I can't predict when a product is going to be a success or not, or when someone's successful product  is going to be wiped out by a competitor. These things are completely unpredictable even for time periods as short as 3-6months from now, never mind years.  I can predict that no one will crush Coca-Cola with a competing product in the next 5 years, but I can't say that confidently with anyone or any product in the tech sector, not even Apple.

 

Also I don't invest in tech in general, but I don't always stick to my rule. I've owned NFLX in the past and I still own some ISRG.  I just get nervous investing in tech, it feels more like gambling to me than investing sometimes.  I find myself doing less and less of it as time goes on and I think that is a trend that will continue.  It is difficult to predict the future of technology in the short term and no one can predict the future of technology in the medium term, never mind the long term. It is just unknowable.  You can guess, but putting money on a guess is gambling.

 

--Eric

 

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Clearly Apple has a moat.  The question is how wide and deep is it?  Eric's comment is spot on

I'm not saying they don't currently have a moat. I'm just saying that in technology the moats are never as wide or deep or as easy to maintain as in other market segments.

 

Buffett has said that the test of a moat is whether a determined competitor with as much money as needed can knock you off.  I see Apple as having a narrow moat around iTunes and a narrow and shallow moat in the iPhone business.  Once Jobs is gone or he stops producing hits, look out below. 

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