SHLD/AAPL

SHLD $188.63

I eventually sold SHLD on $186, making a tiny gain.

Regardless of how I once was enthusiastic about SHLD and trying to tie it back to Buffet's original invention. Lampard is drastically different.

One thing for sure, SHLD now bears much more risk than a typical retailer due to the fact that Lampard is trying to utilizing its extra cash for various unknown investments.

When news comes out about Lampard played a trick on Sears' brands, my initial response was also a "whao". But then after a while, I asked myself, did he created any value from this? The answer is no. While Buffet sees a business behind a stock, Lampard sees investment just as investment.

SHLD might see more upside, but I'm not crazy about it.

-- Update 08/26 --

SHLD has since dropped to $140 range.

AAPL $100

Bought Apple when it was $75. I bought this "hot" stock not because it's hot, but because I believe Apple has something in its sleeve that'll keep surprise the street. The success of transitioning to Intel processor is the key to its computer success. iPod has dominated the market and iPhone will continue the story in the phone industry.

The biggest competitor is not Dell or Microsoft, it's actually HP, who has the resource and ability to pull together hardware and software to make a big punch. Its revival in laptop demonstrated the superior positioning it has.

Dell is out of favor not because of its operation, it's because the time has changed. One sentence says it very well for Apple: "Apple never changed, it's the flavor comes to Apple, not vice versa".

In the new century, user interface and user experience is the key features of a successful product. Apple can do it best, no one can compete.

One other factor, Apple is learning from its previous failures. Jobs is more realistic about the market than before (when NeXT failed). While Gates is the master of bringing the best out of a technical geek; Jobs is the master of bringing the best out of all people around him.

It's a matter of time to watch Apple grow, grow, grow.

Unlike Microsoft and Intel, Apple has big room to grow. When iPod was the center of everyone's focus, I once predicted the killer also comes quietly in its computer line after they moved to Intel platform. The recent quarterly report (April 2007) demonstrated the strong demand for its Mac computers (even though leopard is delayed).

I was shocked to see an article in Forbes that states Apple has the highest sales per square foot in retail industry, almost double the number that Tiffeny can make. When I bought Apple, I was doubt about its retail strategy. I was wrong. Jobs uses the retail stores to demonstrate Apple's product. It's called Apple University.

About Apple's fundamentals, I don't need to repeat too much. It's almost as perfect as an Apple can be.

With limited capital, I have to use call option to maximize my potential gain on this stock. I bought Jan 2008 option strike $100 for prices between $8 to $13. I predict 2007 will have two big upside point. On the day iPhone launch, and on the day year end quarterly report. I should sell the options (not the stock) on the same day or the day after since it typically take 1-2 days for the market to consume any good news from Apple.

I don't know the ceiling of Apple. It depends on how quickly it introduce iPhone series and what's interesting in its pipeline. I have enough confidence though, to see the success of iPhone. The 1% market share prediction is conservative even from Apple's perspective. If people are familiar with Apple's (always) conservative earnings guide, they will know when Apple says 1%, it probably really mean 2-3%. Apple just love to give a surprise party.

Threats to Apple includes Jobs to be the single point of failure. He's working harder than ever. I hope he can do well to see the Apple domination beyond iPod.

Another threat comes from HP. The new HP has already seen its revival in its PC division. It'll be the most respectable competitor Apple will face in the computer line in the years to come.

Another threat comes from Sony. Sony has the stylish element in its product. And Sony has most experience in home electronics. And thanks god Sony's play station 3 is not a success.

Microsoft is getting less and less of my favorite. It'll still earning a lot of cash from its software. But Apple beats Microsoft relentlessly, almost make it humiliated. The Zune launch to be caught off guard by the iPod reduced price is just another way to tell everyone (if you know how to listen and read into behind the story) that Apple's operation is top notch, at least two steps ahead of Microsoft, and everyone else.

Let me make a prediction for 2008. AAPL will hit $140.

--- Update on 05/24 ---

Given limited fund, I decided to use options.

I have bought three dates options

Jan 2008 strike at $100.

This is the first option I bought. Initially bought 2 options for $10 to "taste" it. It subsequently fell to $8, at which point I bought 2 more. It turns out option can be an excellent instrument to "exaggerate" capital gain and loss and thus gives you leverage. My 4 options give me about equal dollar gain/loss with 200 shares of Apple stock. I subsequently sold all these options and change to Jan 2009 strike $120 to avoid iPhone launch risk.

Jan 2009 strike at $120.

The average price I bought is between $18-$20. I don't think $140 ($120+20) is that of a "good" deal. But $20 gives enough "leverage" for speculators/investors. My major holding as of today is 8 options.

Jan 2009 strike at $100.

When I noticed this option, it's at $30 which I think is quite good deal. It, however, turns out to be lightly traded. Evidently investors don't regard this option to provide enough leverage. I bought 2 options of these.

--- Update 06/25 ---

Sold put strike $130 for $24 for Jan 09. Another word, buyers of this option is protecting against $130-24 = $106 on Jan 09. I thought that's unbelievably expensive. I'm quite comfortable to sell this insurance out. I only sold one option though.

--- Update 07/04 ---

Apple's execution of iPhone launch is flawless. I'm glad my predictions about it are mostly right. Barron's had a very cautious article about Apple during the week iPhone is launched. I believe Apple will surprise the market, this is more based on my faith in Steve Jobs. Such a perfectionist wouldn't allow it to fail. The marketing of iPhone can defnitly goes into an MBA case. It's a great splash when Jobs announced it, remained silent for a while, then when close to launch, Apple used a series of actions to build the momentum. First is the ads on Oscar event, then little by little Apple releases more information and surprise for the market. It's a climax build-up. In the market's view, it's a build-up of "hype". Those analysts don't know, though, the reason Apple builds up a great "hype" is because they have a great product. So few people realized that. I was amused by market's reaction when Apple announced improved battery life and its scratch-resistance surface just one week before its launch. Mind you, at that point, probably all the first batch of iPhone are already in shipping carriage to US. Apple waited and waited for the precise moment to announce this.

-- Update 08/23 --

There was a test to my tolerance during the market sub-prime mortgage melt-down. AAPL at one point tanked to $106. The once profitable options are now biting back hard on me. To a point where the total returns from options is negative (granted I already take profit once before). Now I don't think AAPL sells mortgage or buys mortgage backed derivatives, yet AAPL get hit harder than the market. As one online post put it, it very well be because of those hedge funds selling AAPL to cover losses. I think that makes sense. AAPL has since recovered to $131 today.

The motivations for AAPL's share price for the rest of the year comes from its three major business. I think iPhone sales figure will be slightly above guidance but won't have much surprise here, its time is yet to come but on the way. Mac business will, however, surprise the street. My prediction about Mac is paying off, in the next two years Mac will remain the core income source for AAPL. New iPod version will come out for year-end shopping season in time.

There is nothing wrong I can see about the company. I think I'm pretty satisfied with the company's product line. Apple knows better than anybody about what customers want. I still remember last year iPod's refresh. Most investors wasn't satisfied with what's new with the product, yet it's good enough to spur sales. The share price go up and down more because of the rational/irrational investors. Most time people let their imagination go up into sky.

The general market may still hurt AAPL in the months to come. AAPL's upside could comes from iPhone European deal news and new iPod announcement. And, of course, wait till the quarterly report.

-- Update 09/17 --

Everything about Apple has been pushed to extreme by Steve Jobs, the perfectionist. Yet I somehow feel a little worry on its pressure to its partners. Apple evidently has great leverage on negotiation table. The iPhone carriage thing is a perfect example. One carrier after another, they'll all kneel down in front of Apple, agreeing on some unprecedented subscription-profit-sharing. Maybe I'm wrong, maybe I underestimated how this is just business reality, maybe I didn't understand the cruelty of the business world, yet I still feel a little worried. Apple sometimes is too greedy. I wonder if it may backfire sometimes. When people condemn Microsoft for its dominance and its relentless assault on Netscape and took it out using some unfair competition, I feel under same circumstances Apple would do the same, if not worse. If there is only one enemy that can destroy Apple, it's itself. The giant has grown to be so proud and it better not been blind-sighted that integrated as it is now, it still need partners for a wild wide success.

-- Update 10/14 --

AAPL has since reached all time high of $170, after which settled at $167, which still rises much faster than I expected.