A Different Apple From Bubble Days

 | May 13, 2014 | 10:00 AM EDT
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Let me give you a quick history of my thoughts on Apple (AAPL).

iMac (1998) -- What is the handle for? This thing weighs a ton.

iPod -- This is dumb. I like looking at all the CDs stacked on my shelves. This mp3 thing will never catch on.

iPhone -- Not a phone. A toy, made by a toy company.

iPad -- You have to be kidding me.

There are a few lessons from this. One, I am supposed to be a smart guy but I missed out on the biggest single stock trade perhaps in the history of stocks. I didn't "get it." At least I had the sense not to trade it, rather than pathologically trying to be short it.

Two, having a healthy skepticism is necessary to trade in the financial markets. But you can carry it too far and be one of these doubters who just doubts everything.

I do tend to believe that most people fail at what they try, and that human beings tend to make things worse over time. But the cases in which they don't fail (Tesla comes to mind, for a contemporary example) make up for it a thousand fold.

I was thinking about Apple the other day because of the Beats acquisition. Everyone should know by now that at $3.2 billion, this isn't really significant from a market standpoint, but the deal says a lot about Apple.

On a first-order basis, it says that Apple is throwing in the towel and finally investing in a streaming music platform. It also says that the headphones, while reviled among true music connoisseurs, have a neat design that people like and Apple used to be about cool designs.

But it is pretty clear that Apple is playing from behind here, perhaps way behind. It is not news that Tim Cook, the operations guy, is not an innovator or a thought leader. Investors know this, and the stock appropriately went through convulsions last year.

But there are reasons to like the stock, maybe not because it will ever reclaim its former glory. But tech is filled with a lot of sketchy, profitless business models these days. The purpose of this flush isn't to correct the stock market, but to restore valuations to their appropriate levels, on the upside and the downside.

Apple is a huge, profitable company at a very attractive valuation, compared with the other fluff out there. When the market de-risks, it stands to reason that the primary beneficiary will be Apple -- and Microsoft (MSFT), for that matter.

So back in the bubble 15 years ago, we used to talk about "new economy" and "old economy" and we kind of have that today. But really it's "new tech" (social networking and stuff) and "old tech," which also includes stuff like Oracle (ORCL) and IBM (IBM). For those of you with long memories, Microsoft and Oracle didn't used to be un-fancy value stocks; they used to be highfliers, just like Facebook (FB) is today.

Stock market investing is about being clairvoyant and picking companies that will outperform over a period of many years. But it is also about being in the right place at the right time, when stuff is in favor or out of favor.

Apple isn't a fundamentally different company than it was last year, but it is currently in favor. It will always be an alternative to the momentum stocks.

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