Over the last few years I’ve been pleased to be both a devoted buyer of Apple and Netflix products and services, and an owner of both stocks. In fact, I frequently sing the accolades of both companies here.
And the relationship has been wonderful. Aside from their annoying habit of throttling their best customers, and delaying new releases to do download deals, I am a big fan of the Netflix service. However, a couple months ago as the stock continued to climb into the stratosphere, I got cold feet. The combination of a huge multiple, a turbulent market, and a very nice locked-in return convinced me to sell. It’s hard to feel bad about a 300% plus gain – so I am not complaining – but I probably should have stayed in the game a bit longer, as the stock continued to climb another 20%, and earnings continue to be stellar. In retrospect, I think I was reacting more to the overall market than my feelings about the stock, as Netflix seems to be a legitimate long-term play, and is probably a good core choice for any portfolio.
Investors are debating whether or not Netflix can sustain the multiple and continue to grow, and while I am not rushing back in to buy, I do see the rationale of continuing to invest in Netflix. They are revolutionizing our home entertainment model, and Blockbuster, the only competitor with even a modicum of momentum, is bankrupt. The stock popped nicely when they made the small move to establish distribution in Canada, and I am sure Netflix executives are giddy at the world-wide potential for their business model. I now have five or six “Netflix equipped” devices in my home, office, and briefcase, and they seem a company just hitting their stride, so the multiple doesn’t seem all that out-of-line compared to the potential.
And speaking of companies revolutionizing the home entertainment model, let’s talk about Apple. I have had an unabashed love affair with Apple’s products and stock over the last few years. But I sold most of my Apple stock at near its historical high a couple weeks ago. Again – no complaints as I also had a 375% plus return on this one. I also accept I may ultimately regret this move, as over the last decade Apple has proven itself a company with much up its sleeve, and also seems a core portfolio candidate. I love my new iPad – and a recent consumer survey found that it had the highest satisfaction level of any new product ever introduced. Any product! Pretty impressive!
So why sell, you may ask? Well, recently I was comparing phones with some very tech-savvy friends. They all had Androids, and the fact is that their phones left my brand new iPhone in the dust. That’s probably why Android-based phones have a bigger market share than Apple. They were much better phones, felt better in my hand, surfed the web faster and easier, had really great Aps, they were not locked into AT&T, and they were less expensive than Apple. And it made me realize that although there is much I love about my iPhone, there is one thing I hate about it. The fact is that while it is a nifty music machine, a pretty good little web surfing device, and a good camera, it is a really lousy phone that is getting worse. I suddenly felt like a victim of abuse. There was a better world out there that I didn’t know about, because my lover Apple keeps hanging up on me.
My techy friends also complained about Apple’s arrogance and closed systems. It reminded me of conversations I had ten years ago with Nerds that loved Apple and hated PC’s, only this time their anger was aimed at Apple. And I have to admit that “Big Successful Apple” does somehow not feel as good as the old underdog taking on Microsoft. Big Apple has become arrogant and pushy, offering political gibberish instead of solutions when then do have problems. Witness their reaction when the news that the antenna on the new iPhone was defective. Old Apple would probably have not made the mistake, and if they did would have fixed it. New Apple uses corporate PR spin, and sends you a plastic cover to fix the problem, but only if you know the right people and really complain a lot.
Big Apple is unfortunately starting to remind me of the old IBM. Thirty years ago, long before Apple and Microsoft were household names, IBM was synonymous with technological innovation and American corporate power, but it unraveled quickly. They became Big Blue – an arrogant behemoth that soon lost their edge.
Still, Apple is an incredible company that I don’t see falling anytime soon, but its different being on top while everyone crawls up you, as opposed to being a scrappy company crawling up the establishment. And until they really figure out the “being on top” part I feel more comfortable locking in my gains.