Portfolio Moves: Sold Apple

After 4.5 years, I finally closed my Apple position last week.

I started buying in early 2013 in the low $60s (accounting for the 7 for 1 split). In 2016, I added to the position in the low-mid $90s. For quite some time it was my largest or second-largest position.

apple

No matter how conservative I got, I couldn’t come up with a value below $120. Last fall, I wrote:

The narrative is either “its going gangbusters” or “its going down the toilet”. Right now, we seem to be closer to the latter.

The narrative shifted over the past year, as Apple racked up an impressive 80% run.

As usual, I began selling way too early ($120), and finally exited my last sliver on November 10 at $175. Overall, my cost basis was $71, and my average exit price was $130 and change.

Counting dividends, Apple returned between 18-20% CAGR. Not spectacular, but considering the size of the position, and its relative safety (in my opinion), it is my kind of long-term trade.

At current prices of $175/share, AAPL doesn’t seem to be as great a value.

Why?

Last year, Apple earned about $9/share. It has about $31/share of excess cash. Using a conservative 12x multiple on the earnings, and a 20% repatriation haircut on the excess cash, I get a valuation of about $135. If you use a 15x earnings multiple, you can justify paying up $160.

I don’t know what the right multiple is. I hesitate using a high multiple because (i) Apple relies heavily on the iPhone, which regardless of how the winds are blowing currently is subject to disruption/erosion, and (ii) earnings are starting to saturate/grow more slowly.

I don’t think AAPL is grossly overvalued. However, I prefer to sit this one out.

Apple might quite possibly march onward to become the first trillion dollar company. I’ll be happy to watch the fireworks, and cheer on from the sidelines.

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Portfolio Activity

This year – so far – has been unusual.

Long Positions

I haven’t bought many new positions, except for the following.

  • increased my Oaktree Financial position by 33% at the beginning of the year for $40 (put got assigned)
  • doubled my position in Fairfax Financial around $435/share
  • started building a position in ALJ Regional holdings. Currently I am 1/2 or 2/3 full, at an average price just below $3.20.
  • bought a slug of IBM after the latest disappointment.

Consequently I am about 35% in cash.

My largest positions are “financials” BRK (15%), LUK (10%), FRFHF (8%), OAK (7.5%), and WFC (6.5%), and account for nearly 50% of my invested portfolio.

Options

I have been been trying to educate myself about using options more opportunistically. It has become a new weapon in my arsenal. It fits perfectly as an overlay to a long-term value investing strategy.

At some point in the year I’ve embarked on months-long cash secured put campaigns  on:

I’ve had shorter lived positions in HBI, FSLR, and NOV, in which the position moved away from me rather quickly.

I currently have open CSP positions on UA, GME, DIS, FAST, MSM, and STX.

Between 2010 and 2016 my total “income” from dividends and options increased from $3,000 to $9,000 (yield between 2-3%). So far this year (2017), I’ve generated about $18k of income from options and dividends, and feel reasonably confident about hitting $25k by the end of the year (yield >5%).