Postcards: Part 2: Apple the Indestructible

Let's finish our conversation from Friday. ͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­͏   ­ Forwarded this email? [Subscribe here]() for more You are a free subscriber to Postcards from the Florida Republic. To upgrade to paid and receive the daily Republic Risk Letter, [subscribe here](. --------------------------------------------------------------- [Postcards: Part 2: Apple the Indestructible]( Let's finish our conversation from Friday. [Garrett {NAME}](floridarepublic) Aug 4 floridarepublic   [READ IN APP](   Dear Fellow Expat: I have a question. How long do you have to hold a door for someone? I was leaving the gym yesterday. A woman and her daughter walked toward me as I exited. Me, being utterly charming and empathetic, held the door open. They both thanked me… But, about 15 yards (45 feet behind them), a hulking man approached. The woman and her daughter entered. I saw the guy but let the door go… because he was still 10 to 12 yards away. I moved toward my car, and a few seconds later, I heard him sneer… “Thanks a lot, bro.” First off. I don’t work at the gym. I’m not a greeter. I’m not a “door-holderer.” If “Brick Bodies” wants me to do that, it is $150 an hour. I’ll even wear a name tag. But what’s the threshold for holding the door for someone approaching? Five feet? 10 feet? 50 feet? I felt like Larry David on Curb Your Enthusiasm… “Thanks a lot, bro,” a grown man told me… Do I have to hold the door for everyone? Is there a rule? I’ll offer six seconds. You get six seconds to reach the door, or I slam it shut. Thanks a lot, bro!!! Let’s get back to Apple from Friday’s discussion. [Upgrade to paid]( Apple Earnings and Price Entry My first real job out of college was in competitive intelligence. I worked for a Chicago-based company full of post-Cold War spooks. We spied on companies on behalf of their rivals. I know way more about Coca-Cola’s bottling networks than any reasonable human should. I know the precise weight and design of John Deere tractor axles. I know how much Bumblebee Tuna paid per ounce of fish to its fisherman in Pago Pago, American Samoa. The themes of this industry dominated my early career. I forgot my coworker’s name - but he sat in the cubicle beside me. He treated every biweekly payment of his 401k as if it were Christmas. It was 2005. I remember—he cobbled together that whopping $235 in his account that week at full match—and bought more than 100 shares… Of Apple (AAPL). This was before the iPhone. Before all those new, cutting-edge gadgets that you see today. Back then, their significant innovation was the iPod for music… They also sold these big, goofy-looking iMac computers that looked like spaceships. But Apple has been front and center in my orbit since my coworker bought those shares at a split-adjusted level of around $1.50 (good for him). Not because it became the biggest company in the world. Not because Warren Buffett bought it. Not because my friend’s brother had taken a job there out of college.   But because I took the time to understand a tech company for the first time since the Dot-Com crash.  But before we pick a price or a metric, you need to understand what drives shareholder value in Apple.  What Apple Does  It took me years to buy an Apple device. Now that I have so many of them, I don’t think I can return to the PC world. But what happened? How did a guy who doesn’t buy brands become an Apple “addict?”  It’s not that complicated. You must understand the things that make it tick. The things that bring people back - even if they’re not the hardcore, rah-rah fanboys. Let’s keep this simple. Apple’s secret sauce is creating a brand that brings customers back… in perpetuity.  Several core drivers contribute to this phenomenon. These drivers instill a powerful bond between the company and the consumer. First is Apple's commitment to innovative design and technology.  Apple products, like the iPhone and MacBook, are known for their sleek, easy-to-use designs and cutting-edge features. However, their simplicity and elegance set them apart from competitors like Dell, Samsung, and Lenovo.  Excellence in design has established products that are not only functional but also desirable. They stand out in a crowded market. Next is Apple’s incredible moat in its ecosystem.  A subtle brilliance exists in how many devices, software, and services work seamlessly together.  For example, iPhones, iPads, Macs, and Apple Watches can easily sync and share information, creating a cohesive user experience. This didn’t exist when I graduated from college.  Now, it’s expected. I want my music, photos, documents, and arsenal of creativity all across platforms. Thanks to its cloud software and storage platform, I can shatter a laptop on Monday, and everything is on my desktop instantly.  I can write an article on one device, spill coffee on the keyboard, replace it in a few days, and finish it on my phone. I can’t stress the torment of losing a document, part of a book, part of a song, a screenplay… hours of my life up in smoke because … of life events. There’s no going back from this. It’s just too important to my career and the careers of many other people who do anything creative. Apple has benefited because those creative-focused features spilled over into the business-to-business arena. This integration encourages customers to remain within the Apple ecosystem, offering convenience and compatibility that is difficult to find elsewhere. Next, Apple has built a strong brand identity and community. The company has cultivated a sense of loyalty and enthusiasm among its users, often called "Apple enthusiasts."  This community is engaged and passionate, eager to share their experiences and advocate for the brand. Next, Apple's marketing strategies significantly build this community by emphasizing innovation, creativity, and a distinctive lifestyle. Apple always makes a big deal with product launches and events. There’s no other company that builds enthusiasm for products. You’d have thought the company that would unleash innovation and sleek design and features would be an auto company. And yes, Tesla does hype VERY well. But Apple’s on a different level. It’s not just the last 15 years of products like the MacBook Air (2008), iPad (2010), Apple Watch (2015), and iPhone X (2017). Go back to 1984 with the launch of the Macintosh. Steve Jobs, Apple's co-founder, famously unveiled the product. His theatrical flair marked the presentation, which included showing off the computer's revolutionary graphical user interface. Jobs demonstrated the Macintosh's capabilities by having the computer speak to the audience, saying, “Hello, I’m Macintosh. It sure is great to get out of that bag.” Jobs promoted the mouse-driven interface and the Macintosh's software capabilities, including applications like MacWrite and MacPaint. This showcased the machine's graphical interface and WYSIWYG (What You See Is What You Get) capabilities. WYSIWYG is a staple of Apple marketing and innovation. And… then there’s the Macintosh commercial. Ridley Scott directed a famous ad called "1984." It aired during the 1984 Super Bowl. The ad portrayed a dystopian future and positioned the Macintosh as a tool for freedom and creativity, breaking from conformity. It ends with the phrase, "On January 24th, Apple Computer will introduce Macintosh. And you'll see why 1984 won't be like '1984.'" The Macintosh was a precursor to the creative freedom that its ecosystem created. Apple product launches generate excitement and media attention, creating a sense of urgency and exclusivity around new products. Macintosh was just one of them. This strategic approach helps maintain Apple's position as a leader in the tech industry and drives consumer demand. And it’s been this way… for 40 years. Turning to Retail and Security Then, there’s the retail experience. Apple Stores enhance the brand loyalty. Each store provides a welcoming and informative environment where customers can explore products and receive support.  This isn’t organic. It’s by design. The staff and minimalist store design create a positive and engaging customer experience, further strengthening their connection to the brand. And finally, a big one.  Privacy and security. This doesn’t sound that important when you’re looking at color spin on a screen and getting used to the keyboard. But this ecosystem’s security is the thin line between a Trillion-dollar company… and dust. Ask Zynga… ask Sony…ask Target…and MySpace… and Yahoo!. They suffered immense brand damage from major breaches. Customers trust Apple to protect their personal information, adding another layer of loyalty to the brand. Shareholder Friendly Anyone who invests in Apple should also explore one question. “Is the company shareholder-friendly?” It’s one of the most shareholder-friendly companies in the world. There are five pillars on which you can argue this… - Consistent Dividend Payments: Apple resumed its dividend payments in 2012 after a long hiatus since 1995. The company has consistently paid quarterly dividends since then. It also has a track record of increasing its dividend payout annually, reflecting its strong cash flow and commitment to returning capital to shareholders. This is one reason why Buffett was so enamored with the company. - Share Buybacks Apple has one of the largest share repurchase programs in the world. Since announcing its buyback program in 2012, Apple has spent hundreds of billions of dollars repurchasing its shares. By buying back its shares, Apple reduces the total number of shares outstanding, which can increase earnings per share (EPS) and boost the stock price. - Financial Performance: Apple's strong financial performance, characterized by high-profit margins and substantial revenue growth, has provided the resources needed to return capital to shareholders. Apple maintains significant cash reserves, which it can use for dividends, buybacks, and strategic investments, thereby enhancing shareholder value. - Capital Allocation: Apple balances its capital allocation between investing in innovation and product development and returning excess cash to shareholders. This ensures sustainable growth while providing returns to investors. Apple's capital return program is regularly updated to align with its financial health and market conditions, showing a commitment to adapting its strategies for the benefit of shareholders. - Shareholder Communication: Finally, you need transparency. The company communicates clearly and transparently with its shareholders through earnings calls, investor meetings, and detailed financial reporting. It maintains a strong investor relations program, ensuring shareholders know the company’s strategic direction and financial performance. Taking It to Task Tech is complex and speculative. It's an industry where it's okay if the equity value is increasing and businesses are pumping their money back into the business… Just don’t take on more debt than you can chew - Peloton.  I will note—if you’ve paid attention over the last week—that Warren Buffett and his company, Berkshire Hathaway (BRK.B), sold roughly 56% of their Apple stake in the last six months. But remember that Buffett still owns over $40 billion in Apple… and it’s their top holding. Yes, Buffett might be calling the top in tech right now… but now is the time for you to start thinking of how and when it’s time to buy Apple if the bottom of this market does fall out. If that’s the case… be ready to buy Apple if this market does pull back significantly. Any pullback to 25 times earnings… the lows of April 2024 in the $160 to $170 range, makes the company a screaming Buy. However, if anything major enhances the factors above in retail, product innovation, or balance sheet capacity, it should drive stocks to new highs. I know it sounds obvious. I know it’s one of the three biggest U.S. companies. But it got there for a reason… and its moat doesn’t have many flaws. We’ll continue to discuss what makes companies work in the coming weeks. Stay positive, Garrett {NAME} Secretary of Old Apple Devices Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. Under company rules, editors and writers cannot recommend their positions. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.   [Like]( [Comment]( [Restack](   © 2024 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()