Apple’s share price has doubled, but there is a crunch coming


Apple shareholders must be extremely happy with the company’s performance in the past 12 months.

The stock price is up 111% since the end of 2018, not to mention the US$3 (£2.31) per share that the company has paid in dividends over the period.

While Apple’s full-year 2019 results will not be released until later in January, it generated an operating income of US$15.6 billion in the third quarter of the year.

That translates to about US$60 billion a year, or about the same size as the economy of Luxembourg.

If you had invested US$100 in Apple at the beginning of 2019, you would have more than doubled your money in just one year.

But we also need to look at this from the other side of the market.

New investors must now pay over double the price they would have paid for Apple shares one year ago. This depends on what I call the stupid investor theory.

This states that for a short-term investor to profit from buying these shares at the start of 2019, they must be able to sell their shares to a “stupid” investor now that they have appreciated in value.

This buyer will be forward-looking, probably short-term as well, trading on the expectation that they will find a third “stupid” investor later willing to pay an even higher price.

The important thing to take away is that this cannot go on indefinitely.

And as we shall see, there is a reason why it probably can’t go on for much longer at all.

Why then, was Apple’s stock return so high? The answer is actually very simple.

In 2019, the company’s financial strategy consisted primarily of repurchasing its own shares, which had the effect of boosting the stock price artificially.


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