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More on Tech Values – Buy Apple, Sell MSFT in 2011?

by Brett on January 20, 2011

My article from Monday – in which we looked at the future prospects and rough valuations of our favorite (or at least most well known) technology companies has sure drawn a lot of attention – and anger too!

I sent it over to Minyanville’s editor – who liked it a lot, and was kind enough to publish it (link here).  It garnered a couple of snide comments, but that’s about par for the course on the internet these days.

Then, Seeking Alpha decided to publish it (and feature it, too) – and the real fireworks started!  The article has received over 11,000 views and counting – and a fair amount of comments…most of which are quite derisive!

SA is normally a very rough commenting neighborhood – I often liken it to TechCrunch for the investing side of the net.  On TechCrunch, the commenters – who I picture to be complete losers that operate out of their mom’s basement – can’t wait to pan the latest startup or story.

It can be similar on SA – though as harsh (and idiotic) as the commenters can seem, my experience is that regular SA readers are normally quite civil and smart.  I know this because I’ve picked up a number of readers who have read my articles over there.  So I’m content to post, take the exposure, and not worry about the commenters.

Well, that’s not exactly true.  If you read this comment thread, you’ll see me stirring up the pot and being downright rude back to some people.  And maybe this isn’t the most mature thing to do, but sometimes I like to do it to juice up the number of comments.  I figure SA wants more comments, good or bad – so we’ll let them eat their cake!

Anyway, one VERY GOOD thing that came out of this circus was an astute commenter/reader named Adam Hartung - who also happens to blog for Forbes.

Adam enjoyed my take, and was particularly keen on my focus on the quality of management with regards to these companies.  And he was kind enough to cite my article in his piece!

His conclusion is to buy Apple, sell Microsoft in 2011. If you read my initial piece, you’ll know that I agree with that pair trade.  In fact, I would agree with any pair trade that involved going long a tech company with management that can make good products, while simultaneously shorting a tech company with bean counting management (a la Microsoft).

See a lot of the commenters on SA got on me for not including nitty gritty numbers (like projected iPad sales for Q2 or whatever) – but that’s pointless in my opinion.  You’ve got tens or hundreds of Wall Street analysts watching these companies like hawks – they’ve ALREADY crunched the numbers.  And they’re reflected in the stock prices!

What’s not reflected in their valuations?  Really anything more than 12 months out.  Which is why I attempted to peer 3-5 years into the future.

The iPad was not only a game-changer – it was also a surprise, an elbow in the road, if you will.  One that helped propel Apple’s stock to new heights.

Had you valued AAPL only on its existing products – the iPhone, iPod – you’d have missed the boat, and concluded the stock was fairly priced (or more likely, overpriced).

There’s an old saying that you bet the jockey, and not the horse.  In the technology world, you bet on the management team, and not the existing product line.  Bet on their ability to innovate and make good products.


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  • http://www.ThePhoenixPrinciple.com Adam Hartung, Chicago, IL

    You are deadly correct Brett. Too many analysts approach their jobs the way Steve Ballmer approaches his – like the answer is in who has the biggest, most complex spreadsheet. Truth is that no spreadsheet is better than its assumptions. Get one of those wrong and the entire spreadsheet can be worthless. If the analysts don’t understand management’s ability to anticipate and participate in market shifts – especially in tech – then they won’t be successful analysts. Keep up the good work!

  • Brett

    Thanks Adam! Not surprisingly, I concur completely, especially with regards to your point about how easy it is for a good looking spreadsheet to get turned on its head!

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