Monday, November 28, 2011

Apple Stock

Karl Smith is bearish on Apple:

On the one hand you can buy Apple stock for $375 a share and pay $7 to ScottTrade. On the other hand I also have a trash can in which you can deposit your $375, pay me $5 and I will set it on fire for you.

Clearly, I am offering the better deal as in both cases you have approximately zero probability of getting your money back and I am willing to burn it for $5 whereas you have to pay ScottTrade $7.

This is really one of the paradoxes of the stock market. It is not clear whether or not companies that do not issue dividends will ever be investments that pay off. The longer Apple puts its cash in executive compensation without rewarding owners, the higher the risk that Karl Smith is right.

How many rich families do you know that sustained multi-generational wealth via the stock market? How many do it with real assets? It is worth thinking about.

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