DGI Adventure – 01-21-2016 Limit Order Executed + Investment Thesis – Apple Inc (AAPL) – $94.50/share

So my wife bought some Apple shares yesterday (1/20/16). I
didn’t get a chance to write about it at the time though, so here we are. Once
again my wife’s ability to set a seemingly perfect limit order price is on
display. I’m thinking she should just decide all the limits at this point.

I don’t remember when exactly she put in the
order; it was a while ago. Once the share price got back under $100, which would
have been around January 7th -ish, we started talking about how it’s
probably not a bad time to look at AAPL. She had one more purchase to make with
her 2015 ROTH IRA contribution, so she went for it. 

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I don’t always do a full blown investment thesis on my wife’s
investments, but I’ve decided to do one for AAPL because I’ve been thinking
about getting some shares for myself. Plus I think it’s worth putting in
writing what a strong company we’ve invested in.

Please see  my
investment thesis process
for a full explanation of the structure and
components of this thesis.

Dividend Cycle

First week in February is my best guess for when AAPL goes
ex-dividend next. We should find out shortly since they report earnings next
week. It’s not far away regardless. AAPL just recently (2012) reinstated a
dividend after a 17 year hiatus. They’ve raised it every year since, but always
for the Q2 dividend, so I’m expecting it to remain at $0.52/share for now,
which is an annualized $2.08. Their 3 year DGR is 12.6% annualized. They’re two
years away from joining the CCC list as a
challenger.  I guess we just want to get
in on that dividend train early.

Investment

She purchased 16 shares at a price of $94.50/share for a
total investment of $1,518.95 (including $6.95 trade commission). At the time
she placed the order it was somewhere between 3-6% below the market price. Of
course the share price closed 2015 at $105.26, so this represents a 10%
discount from that. It closed today at $96.30, so she’s already showing a
nominal gain in imaginary cost basis bucks.

The
QC (Quantitative Case)

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*12.6% is an awesome DGR. It’s only yellow because it’s such
a short history.

LOL (Limit Order
Logic) – $94.50

My wife had $1,518.95 left in her ROTH. With commission of
$6.95, she could buy exactly 16 shares at the $94.50 price point. So that’s
what she put her limit order in for.

QWaF (Qualitative
Warm and Fuzzy)

Uh…it’s Apple? It’s between them and Google to take over the
world, and Apple pays a dividend.

Seriously though, the iPhone revolutionized the world, and
the company should continue to enjoy the knock-on “first mover” effects for a
while longer. Their app ecosystem is the most mature. Their ability to integrate
hardware, software and service is second to none. They remain firmly planted at
the forefront of the mobile revolution and are already in so many freaking people’s
pockets it’s scary.

And look at all that cash!

CPR (Cold and Prickly
Risks)

Apple makes so much money because they charge a premium for
their hardware. They get away with it because their operating system is so
clean and user friendly…and largely because of the “network effect” i.e. there
are more/better apps on the apple app store, so people buy an iPhone instead of
an android. Or since they already own an iPhone, people are going to buy an
iPad instead of some other tablet, because it’s so much easier to integrate
with your existing stuff. Then you buy apple TV, and an apple watch, etc. because
it all works together so seamlessly.

If Apple starts to slip in terms of that clean operating system
or if competitors are able to gain traction by offering hardware at a discount
that consumers can’t refuse, the alternative app platforms, integration systems,
etc. will start to enjoy their own network effects and the Apple premium could
start to deteriorate.

Their current market share in developed markets is
probably fairly safe because of the stickiness of the “apple ecosystem”.
Emerging markets, on the other hand, are a fiercely competitive battleground right
now. And that’s where most of the real meaty growth is. It will be a tough
environment to make the high quality, high price model work. Their track record
and huge pile of cash are good reasons to bet they’ll figure it out.

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