Buying Apple Here At $550

Apple at under $550 is a screaming buy. I'm not nearly has bullish as I was a year or even 6 months ago. The competition has finally caught up. Steve Jobs has been dead for over year and without him to keep things together, the team he built is slowly falling apart.

However, even if Apple's best days are behind it, it still has a fantastic future. The stock is incredibly cheap at under $550. The have around $130 in cash and a billion or so per week coming in. Earnings are not going to grow at 90% or even 50% per year from here. But 20% earnings growth from here is reasonable.

Apple earned $44/share in the past year. They are also paying $10/year/share in dividends. The stock is trading at 12X last year earnings. Of this $550, $130 is cash, so you are really only paying $420/share for the company. That's a P/E of 9 (NINE!) for a company that's conservatively growing at 20%+/year. 20%+ growth for a company of this size is incredible! On a valuation basis, Apple has never been this cheap in 5 years.

Assuming a conservative 20% growth rate, I expect them to make more than $53/share over the next year. Last quarter was a disappointment because they couldn't make as many iPhone 5's as they wanted to and they didn't sell as many iPad's as some people hoped. But they grew earnings 23% vs. last year and the stock dropped $130. Only for Apple is growing 23% year over year considered a "disappointment"!

Since you buy a stock for FUTURE earnings, not past, the market is giving a 7.5 P/E on Apple's forward earnings at today's prices. Unless you think Apple's earnings are only going to grow at less than 6% or 7%, the stock is too cheap. I can't think of any reasonable situation where Apple would only grow profits 6% in the next year. It's also under the 200 day moving average which it hasn't been in years.

Hence, I'm buying the stock here.

Tesla and Electric Cars

Toyota pulls the plug on their electric car. There is no competition for Tesla.

Only Tesla and Elon Musk understand that in order for electric cars to succeed they need to be BETTER CARS!! None of the other auto makers get this.

Electric cars are never going to succeed because they are green; or because because gas prices are high. He knows that he needs to build a car that you will buy EVEN IF GAS WERE FREE and you didn't give a damm about the environment, the Earth, or climate change. He's got to build a car that is so far ahead of everything else in a price range that you will buy it no matter what.

And I believe he has done that with the Model S. The only question is how many can Tesla make and how fast while keeping the quality extremely high.

Audio-Technica ATH-M50 Headphones

 
 I got the Audio-Technica ATH-M50 headphones and spent over an hour listening to them side by side in a noisy Apple Store with $300+ headphones. I listened to my favorite songs along with various random tracks that were on the iPhones and iPods. I listened to Beats Studio, Bose QuietComfort 15, and Bowers & Wilkins P5 back to back to compare. These were the most expensive headphones in the Apple Store. They were all $300.

I can say that you don't need to spend $300+ to get a pair of GREAT sounding headphones. These sound BETTER than those headphones, are better made with higher quality plastic, better ear pads, are just as comfortable, and cost less than HALF of those headphones. They are very efficient. I needed to set the volume on my iPhone to 1/2 to 2/3. Any more and they are too loud. I paid $111 on Amazon for these. They also fold up for traveling, come with a 1/4" screw on adapter, and a traveling case.

These headphones do not have active noise cancellation like the Bose or Beats headphones. But the ATH-M50are noise isolating, closed ear headphones, and do almost as good of job keeping noise out as the active noise cancellation headphones. The only downside to these headphones is that you will probably have to take off the case in order to use them with your iPhone. The plug is huge and most likely won't fit the opening of any iPhone case.

If you are looking for a full size (they are huge, but fold up), high quality sound, corded headphones, these are the ones to get for your money. Of course, I wouldn't wear these for running, or working out. You'd use these for watching a movie, sitting at your desk, sofa, at the office/coffee shop to block out distractions, etc. when you want the best audio quality. There are better sounding headphones, but they cost A LOT more money. Look at the reviews on Amazon; 481, 5 star reviews, vs. 8, 1 star reviews. Everyone loves them.

How Does Facebook Make Money?

One discussion I often get into with people not in the technology business is "How does Facebook make money?" Facebook is where Google was in 2004. Most lay people didn't understand how Google made money back then either.

A concept many people don't understand is that you don't have to make money by charging for your product or service. Just because you give away your product or services for free doesn't mean it has no value. There are other ways to monetize the value you create besides charging consumers. This is true both as a business and as an individual. Some examples of this are:

• Traditional media such as radio, TV, newspapers, etc. They have long broadcasted or published their content for free, but there is no doubt they make plenty of money through advertising.
• Along the same lines, there are now many independent bloggers, writers, etc. earning their living by publishing their content on the Internet for free. Once again, they give away their content for "free" to their readers, yet they still "make money".
• Youtube was founded in 2005. In 2006 Google paid $1.65 billion for it. Youtube never "made money".
• Skype was founded in 2003. In 2005, eBay $2.6 billion for it. Then in 2011, Microsoft paid $8.5 billion. Skype has never "made money" in 10 years of existence. It certainly doesn't bring in enough money to justify pay ing $8.5 billion.
• Instagram was bought for $1 Billion in cash and stock by Facebook in April 2012. It was initially released in Oct 2010. It never made a single penny.

These are just a few examples I can think of off the top of my head. But getting back to how Facebook makes money, consider the assets Facebook has and the value of those assets.

• There are over 900 million people on Facebook despite being banned in China. Nearly 1 in 7 people in the world have a Facebook account and half the people on the Internet. Nearly everyone under the age of 30 is on Facebook and it is the platform they communicate on. If you don't have a Facebook account, you are cutting yourself off from nearly everyone that will determine the future of our society, half the people with Internet access, and 15% of the world's population.
• Facebook not only knows everything that you write in Facebook. Facebook also knows who your friends are, and what your friends say about you. Facebook allows you to "tag" other people in photos and posts. While Facebook lets you remove tags from pubic view, Facebook itself still has this information. Removing yourself from other people's posts takes it off your account, but it doesn't take it off theirs. Since we have freedom of speech and press, there is nothing you can do to stop someone else from posting a photo of you that they took in a public space, or writing about you.
• Deleting your Facebook account or not having a Facebook account does not remove you from Facebook. As long as any of your friends write or post about you, Facebook knows about you and hundreds of millions of people. In fact, not having a Facebook account means you are letting other people define your identity instead of defining your identity yourself.
• Facebook has facial recognition technology. If you have been "tagged" in several photos, they now have software to recognize you in photos everywhere. Given that cameras are everywhere, automatically recognizing millions of photos and videos and who is in them has enormous potential.
• Facebook and Google are the largest information gathering service the world has ever seen. I can see in the very near future that they will know more about you than you know about yourself. This will happen whether or not you are on Facebook or Google unless you isolate yourself from the rest of humanity. The fact you are reading this means you haven't.

Of course, when I describe this, it scares most people. The implications of this is that there is no more privacy unless you wish to cut yourself off from society entirely. Look at a typical smartphone that is being sold by the hundreds of millions every year. It knows where you are at all times (GPS), which direction you are looking at (compass), what you are looking at (camera), what you are listening to (microphone), how you are moving; walking, running, cycling, driving, etc., (accelerometer). It is always connected to a high speed Internet connection, so that this information can be sent to anywhere in the world. The reaction, I get from some people is "Well, I won't have a smartphone!". But what good is that if everyone else around you has one? Facebook will know about you as long as other people write, take photos of you, or if you are in a public place with cameras.

I will write another post as to the philosophical and privacy issues. Everything you do, buy, see, hear, read, everyone you contact, everywhere you go is being recorded and analyzed by a computer somewhere. There is no stopping this trend. It is counter productive to fight it as it can not be stopped. A better approach is to understand the technology so that you can use it for your advantage while protecting yourself from its abuses.

Getting back to Facebook, the most obvious way they will monetize this information is through targeted advertising. For example, imagine mounting a camera on a electronic billboard. By using facial recognition technology, the billboard can change its advertisements based on who's looking at it. There is no question that the value of the information is enormous and unquantifiable. How Facebook makes money is only limited by their imagination.

Google Nexus 7 vs. iPad

I've been using the Google Nexus 7tablet for about a week now. I got the 8 GB version. I'm very impressed! This is the first Android product worth buying, IMO. Android 4.1, Jelly Bean is very smooth, as smooth as iOS now. I found older versions of Android confusing, but now it's as easy to use and smooth as iOS. The screen is beautiful and almost as good as the new iPad's Retina display. It's not quite as good as the Retina display, but it's better than any other display out there. Battery life is also excellent. You can easily last an entire day or more without charging.

The 7" form factor is much more mobile than the 10" iPad. It's just small enough to squeeze into the back pocket of my jeans. That means it's much more portable and I'll bring it with me more often. I usually left my iPad at home, unless I needed to bring it for work (I am an iOS programmer after all). If I was going to carry something that large, I would bring my Mac Book Air instead.

The Nexus 7 is also much lighter and easier to handle than the iPad. The iPad can be difficult to hold in your hand for long periods of time, especially using only 1 hand. If I am using an iPad for reading or watching a movie for a couple hours, it's heavy and large enough that I need to put it on a stand or set it down on a table or my lap.

At $200 ($250 for 16GB) the Nexus 7 is a winner. It's not quite as good as an iPad, but at less than half the price, it doesn't have to be. It's cheaper and more portable, which means it can go places where the iPad can't. The 7" form factor is a winner. Of course, Apple is going to come out with their own 7".

But if you are already an iOS user like I am, moving to Android is a bit of a pain. All my music, notes, reminders, calendars, contacts are already in iCloud. I'm sure that there are ways to move all of it, but is it worth it? Not really, I think. What makes Apple products so good aren't just the devices themselves, but the entire ecosystem and how easily everything works together; iTunes on the Mac, iCloud, Apple TV, synchronizing across devices. Once people get sucked into Apple products, they stay there for good reason.

But as a standalone product, the Nexus 7 and the 7" form factor is a winner. I've been carrying it around for the past week, while my iPad stayed at home.