Jesse Klein, a student at the University of Michigan, recently wrote a school newspaper column titled Relative Wealth that has widely circulated across the internet in the three days since she wrote it. The column became notorious both for its content and style—Ms. Klein argues that she is middle class despite hailing from a Silicon Valley household that makes $250,000 per year, and her writing style was not well received. There 200 comments at the time I started writing this, and I would guess there were about 10 negative comments to every 1 lukewarm/neutral comment. You can read the article here: “Relative Wealth.”
First, I’ll state my concern with Ms. Klein’s column, and my criticism of it also applies to Ms. Klein’s detractors. In one of her paragraphs, she writes: “So even though I have money, I don’t relate to a lot of people here who do. California … Read the rest of this article!
With non-cyclical mega-cap, P/E ratios actually mean something. It is very difficult for a stock to justify a P/E ratio north of 20x earnings once a business is worth over $250 billion. Earning high returns becomes quite difficult once tens of billions of dollars are involved. This is where the economic concept of “diminishing returns” originated. I think of this when I note that Apple delivered investor returns of almost 80% in 2019 even while profits barely inched upward.
From a P/E perspective, this is where Apple has averaged trading in the past ten years: 15 (2010), 14 (2011), 12 (2012), 12 (2013), 13 (2014), 12 (2015), 12 (2016), 14 (2017), 15 (2018), 16 (2019). From 2015 onward, Apple was a business that could fairly be characterized as an incredibly profitable business with $100+ billion in cash, enormous profits from iPhones driving over half of sales, and an electric array … Read the rest of this article!