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I bought AAPL back in 2005. Since then I've heard again and again about how the stock will come plummeting down because of what a dumb laymen investor like myse

I bought AAPL back in 2005. Since then I've heard again and again about how the stock will come plummeting down because of what a dumb laymen investor like myself would just call "Accounting Stuff" - such as P/E, etc. The same would go for many other companies, especially in the tech sector. Almost 20 years later, almost none of it has come true. Maybe it is irrational, but at this point, it feels like the irrationality is likely to outlive anyone here.

skippyboxedhero 3y ago
AAPL's P/E has almost always been extremely low in that period (and still is iirc, they have a ton of cash on hand which you need to back out). After 2008, AAPL was trading for something like 7x earnings, GOOG same, MSFT same. The funniest part is that people genuinely don't understand that these examples disprove the point they are making. (And yes, NVDA is obviously overvalued...)
- decafninja 3y ago
  I didn't understand P/E in 2005, and to be honest, I still don't fully. All I know is that it's been one of the terms being thrown around during the past 20 years as a reason why Apple's stock price will plummet to the ground and why I'm stupid for investing a large portion of net worth in it. At this point, my upside is immense so unless something absolutely catastrophic happens, odds are it seems I'll be having the last laugh.
  - Invictus0 3y ago
    A genie gives you $1 per year in perpetuity. You are engaged in a bidding war to buy the genie and need to figure out your best price. The price you (the market) are willing to pay is the PE ratio.
    - ryandrake 3y ago
      I mean, you know this, but this is only true for the most basic, dividend issuing non-growth company. Most of the genies don't give you anything per year. Their only value is the amount you can re-sell the genie for. EDIT: I guess I don't understand the "gives you $1" part if we're not talking about dividends.
      - OJFord 3y ago
        E is the company's earnings, not what it earns (or rather pays out to in that period) the shareholder. You (and maybe GP) seem to be confusing it with dividend yield?
        blackoil 3y ago
        As an owner of company, valuation includes both profit withheld and dividend. Think you have 100% of a company with $100 in bank, it makes a profit of $20 and gives $5 as dividend and keeps $15 so now has $115 in account. So, owner got $5 in cash and the book value of company is now 115, and future valuations will reflect on that.
        Sohcahtoa82 3y ago
        In an ideal world, yes. But in the real world, company valuation is an entirely subjective matter that prices in expected future growth or losses.
        OJFord 3y ago
        Is it not clear from my parenthetical there that I understand that? > it earns (or rather pays out to in that period) the shareholder Comment I replied to was calling dividends, and only dividends, within a given year we're calculating P/E for no less, the company Earnings. That just isn't correct, whatever your views on valuation, shareholder ownership, and market efficiency.
      - bluecalm 3y ago
        Dividends don't matter. The companies just choose to buy stock from you with the profits instead of giving you cash. It's a smarter way because shareholders who want the cash can get it and those who don't can keep reinvesting profits while avoiding triggering tax events.
    - bluecalm 3y ago
      Yeah but why should anyone care about earnings in this exact year? P/E might be useful for your thought experiment about the genie but it's completely useless as a tool to value companies.
      - oezi 3y ago
        What? You as the shareholder own the earnings and their use. Earnings thus either become dividends or become re-invested or are used to buy back shares. P/E is the central metric by which to judge stocks on a fundamental level.
        bluecalm 3y ago
        What I am saying is that P/E is based on current year earnings. It can be quite low but the company is terrible (Intel) or quit big but the company is great but chose not to cash out yet (Amazon from a few years ago). You should care about how much the company is likely to make in coming decades. How much they have made in a current year is a useless metric for that. Profits are not the only thing either. Some assets give political power or power to shape the world. If NVidia made 0 it would still be very valuable because of that.
        Invictus0 3y ago
        There is something called forward PE which takes into account the company's estimated growth.
      - blackoil 3y ago
        PE is only one number, you also look into growth as a factor to calculate PEG. So question now is for how long NVidia can grow at this crazy rate.
  - mettamage 3y ago
    If a share of a stock is $100 and the profit of the company is $5 for that year, then the price to earnings ratio (P/E) is 20. Suppose the share price and the profit remain equal, then it takes 20 years for the earnings to "cover" the price of the share. That's the spirit of the P/E ratio, in my opinion. Others would simply tell you that it is: (share_price / earnings_of_that_year) == price_to_earnings_ratio Sometimes analysts will say that a P/E ratio is too low or too high based on what industry competitors trade at. So, perhaps there was a time where you read that an analyst and/or news outlet believed that the P/E of Apple was too high relative to its analyzed peers (e.g. Microsoft - assuming Microsoft was seen as a peer back then). Whether one should or shouldn't trade based on a particular P/E ratio has always been a matter of opinion.
    - Sohcahtoa82 3y ago
      > If a share of a stock is $100 and the profit of the company is $5 for that year, then the price to earnings ratio (P/E) is 20. It's based on market cap, not share price. Market cap is a function of share price (It's just share price * number of outstanding shares), of course, but to just say it's share price leads to misunderstandings. Otherwise, that would imply that a stock split creates a multiplier of the P/E, ie, a company with a P/E of 20 does a 1:5 split ends up with a P/E of 100 post-split, and that's certainly not what happens.
      - Sohcahtoa82 3y ago
        Instead of silently downvoting, how about telling me why I'm wrong. P/E is defined usually defined as `share price / earnings per share`. Market cap is `share price * number of shares`. Via simple substitution, this means P/E is equal to `market cap / earnings`. But calling P/E `share price / earnings` is simply incorrect.
        acchow 3y ago
        In finance circles, the word you are using for "earnings" is usually called "net income" (or "net income for common stockholders"). When people say "earnings" they usually are referring to "earnings per share". In short: net income is total, "earnings" is "per share"
  - nprateem 3y ago
    It's a statistic that's easy to calculate and provides no information whatsoever whether to buy or sell.
  - badpun 3y ago
    Right now, Apple's P/E is on par with SP500 average. It's not an overpriced stock (or, contrarily, the entire SP500 is overpriced).
nytesky 3y ago
Apple PE is 28, Proctor and Gamble is 22. It hardly seems overpriced. It also has high book value because of huge cash reserves and little debt (if any?). 2005 it was a gamble I have no idea, and if they hadn’t invented the iPhone they would have been DOA. To some degree, they will need another revolutionary product as iPhones seem pretty mature, and I think they are still a little unsteady on that front judging from Vision reviews and sales.
gjsman-1000 3y ago
> Maybe it is irrational, but at this point, it feels like the irrationality is likely to outlive anyone here. There is no rational universe where a company can be worth almost $3T, and at the same time, investors know there is a ~% chance every year that Taiwan gets attacked or blockaded, and that company won't be selling anything for half a decade, minimum. It's like betting on the Death Star fully knowing the exhaust port issue exists. Complete with "but surely our fighters (er, US government) will prevent anyone from actually hitting that port." At this point, I just believe the entire stock market is irrational and in the stratosphere; simply because, where else are you going to invest? Too many investors, not enough companies. But what goes up... (Edit: I'm primarily referring to Apple here. I am aware NVIDIA primarily uses South Korea - but at the same time, if something were to happen to Taiwan, even NVIDIA will need to prioritize fab capacity.)
- dinkblam 3y ago
  looking at the stock market we can conclude that a taiwan invasion is deemed quite unlikely by investors. another million dollar question: is the likelihood of another magnitude ~8 SF earthquake priced into nasdaq?
- Negitivefrags 3y ago
  I would absolutely bet on the Death Star knowing the exhaust port issue exists. Just because some 1% chance that a new Jedi comes along actually happens doesn’t make it a bad bet.
- slingnow 3y ago
  You're right. And to continue with this kind of reasoning: there's definitely a non-zero chance that humanity is wiped out by a large asteroid collision, or a fast spreading lethal disease, or nuclear war. Therefore since there's a non-zero chance that everything in the future will be worth exactly zero, everyone should stop investing in the market immediately.
skeeter2020 3y ago
What if you bought Apple in 1995? or 89? Would you have remained solvent long enough to make it to 2024? In the market timing is both 1. everything and 2. impossible to predict without cheating.
- marvin 3y ago
  Don't invest on margin, ever.
  - _zoltan_ 3y ago
    That's not right. Margin is a great tool.
  - Sohcahtoa82 3y ago
    I would not invest long term using margin. The interest rates would likely eat any profits unless you got lucky on a bet. Short term, though? Nah, you should absolutely trade on margin. I started investing in 2020 immediately after markets hit rock bottom from COVID. Margin multiplied my gains as I bet on the market bouncing back. You could certainly argue that I was just lucky. I could have easily been wrong and it's possible markets could have taken a longer time to recover than I expected. But tbh, the market recovered significantly FASTER than I expected.
    - marvin 3y ago
      By definition you're risking more than 100% of your portfolio value when trading on margin, even short-term. One wrong bet can wipe you out. You shouldn't delude yourself to believe that this isn't the case because you've had one successful experience with it. Risking getting wiped out may be a palatable prospect if you're early in life and have the time to rebuild your fortune, but it won't be if you're risking 20 years of savings.
adra 3y ago
And if you did the same move with blackberry at the same time, you'd have lost most of your investment. What's your point? That survivorship bias is still alive and running in the modern world?
dehrmann 3y ago
AAPL wasn't riding any hype waves in 2005.
hu3 3y ago
Survivor bias plays a strong role in these conversations. There were a ton of promising companies back then that no longer exist today. But you don't hear about then in HN.
deepakhj 3y ago
I've been loading up since 2006-2007... every quarter I get more shares from dividends. Also bought META at IPO. I only had to sell AAPL/META for a downpayment.
- mancerayder 3y ago
  are you still accumulating at these prices?
  - deepakhj 3y ago
    I haven’t in a bit only because buying a house has stretched me thin, but hope to start putting money in again in a few months.

skippyboxedhero 3y ago

AAPL's P/E has almost always been extremely low in that period (and still is iirc, they have a ton of cash on hand which you need to back out). After 2008, AAPL was trading for something like 7x earnings, GOOG same, MSFT same. The funniest part is that people genuinely don't understand that these examples disprove the point they are making. (And yes, NVDA is obviously overvalued...)

decafninja 3y ago
I didn't understand P/E in 2005, and to be honest, I still don't fully. All I know is that it's been one of the terms being thrown around during the past 20 years as a reason why Apple's stock price will plummet to the ground and why I'm stupid for investing a large portion of net worth in it. At this point, my upside is immense so unless something absolutely catastrophic happens, odds are it seems I'll be having the last laugh.
- Invictus0 3y ago
  A genie gives you $1 per year in perpetuity. You are engaged in a bidding war to buy the genie and need to figure out your best price. The price you (the market) are willing to pay is the PE ratio.
  - ryandrake 3y ago
    I mean, you know this, but this is only true for the most basic, dividend issuing non-growth company. Most of the genies don't give you anything per year. Their only value is the amount you can re-sell the genie for. EDIT: I guess I don't understand the "gives you $1" part if we're not talking about dividends.
    - OJFord 3y ago
      E is the company's earnings, not what it earns (or rather pays out to in that period) the shareholder. You (and maybe GP) seem to be confusing it with dividend yield?
      - blackoil 3y ago
        As an owner of company, valuation includes both profit withheld and dividend. Think you have 100% of a company with $100 in bank, it makes a profit of $20 and gives $5 as dividend and keeps $15 so now has $115 in account. So, owner got $5 in cash and the book value of company is now 115, and future valuations will reflect on that.
        Sohcahtoa82 3y ago
        In an ideal world, yes. But in the real world, company valuation is an entirely subjective matter that prices in expected future growth or losses.
        OJFord 3y ago
        Is it not clear from my parenthetical there that I understand that? > it earns (or rather pays out to in that period) the shareholder Comment I replied to was calling dividends, and only dividends, within a given year we're calculating P/E for no less, the company Earnings. That just isn't correct, whatever your views on valuation, shareholder ownership, and market efficiency.
    - bluecalm 3y ago
      Dividends don't matter. The companies just choose to buy stock from you with the profits instead of giving you cash. It's a smarter way because shareholders who want the cash can get it and those who don't can keep reinvesting profits while avoiding triggering tax events.
  - bluecalm 3y ago
    Yeah but why should anyone care about earnings in this exact year? P/E might be useful for your thought experiment about the genie but it's completely useless as a tool to value companies.
    - oezi 3y ago
      What? You as the shareholder own the earnings and their use. Earnings thus either become dividends or become re-invested or are used to buy back shares. P/E is the central metric by which to judge stocks on a fundamental level.
      - bluecalm 3y ago
        What I am saying is that P/E is based on current year earnings. It can be quite low but the company is terrible (Intel) or quit big but the company is great but chose not to cash out yet (Amazon from a few years ago). You should care about how much the company is likely to make in coming decades. How much they have made in a current year is a useless metric for that. Profits are not the only thing either. Some assets give political power or power to shape the world. If NVidia made 0 it would still be very valuable because of that.
        Invictus0 3y ago
        There is something called forward PE which takes into account the company's estimated growth.
    - blackoil 3y ago
      PE is only one number, you also look into growth as a factor to calculate PEG. So question now is for how long NVidia can grow at this crazy rate.
- mettamage 3y ago
  If a share of a stock is $100 and the profit of the company is $5 for that year, then the price to earnings ratio (P/E) is 20. Suppose the share price and the profit remain equal, then it takes 20 years for the earnings to "cover" the price of the share. That's the spirit of the P/E ratio, in my opinion. Others would simply tell you that it is: (share_price / earnings_of_that_year) == price_to_earnings_ratio Sometimes analysts will say that a P/E ratio is too low or too high based on what industry competitors trade at. So, perhaps there was a time where you read that an analyst and/or news outlet believed that the P/E of Apple was too high relative to its analyzed peers (e.g. Microsoft - assuming Microsoft was seen as a peer back then). Whether one should or shouldn't trade based on a particular P/E ratio has always been a matter of opinion.
  - Sohcahtoa82 3y ago
    > If a share of a stock is $100 and the profit of the company is $5 for that year, then the price to earnings ratio (P/E) is 20. It's based on market cap, not share price. Market cap is a function of share price (It's just share price * number of outstanding shares), of course, but to just say it's share price leads to misunderstandings. Otherwise, that would imply that a stock split creates a multiplier of the P/E, ie, a company with a P/E of 20 does a 1:5 split ends up with a P/E of 100 post-split, and that's certainly not what happens.
    - Sohcahtoa82 3y ago
      Instead of silently downvoting, how about telling me why I'm wrong. P/E is defined usually defined as `share price / earnings per share`. Market cap is `share price * number of shares`. Via simple substitution, this means P/E is equal to `market cap / earnings`. But calling P/E `share price / earnings` is simply incorrect.
      - acchow 3y ago
        In finance circles, the word you are using for "earnings" is usually called "net income" (or "net income for common stockholders"). When people say "earnings" they usually are referring to "earnings per share". In short: net income is total, "earnings" is "per share"
- nprateem 3y ago
  It's a statistic that's easy to calculate and provides no information whatsoever whether to buy or sell.
- badpun 3y ago
  Right now, Apple's P/E is on par with SP500 average. It's not an overpriced stock (or, contrarily, the entire SP500 is overpriced).

nytesky 3y ago

Apple PE is 28, Proctor and Gamble is 22. It hardly seems overpriced. It also has high book value because of huge cash reserves and little debt (if any?). 2005 it was a gamble I have no idea, and if they hadn’t invented the iPhone they would have been DOA. To some degree, they will need another revolutionary product as iPhones seem pretty mature, and I think they are still a little unsteady on that front judging from Vision reviews and sales.

gjsman-1000 3y ago

> Maybe it is irrational, but at this point, it feels like the irrationality is likely to outlive anyone here. There is no rational universe where a company can be worth almost $3T, and at the same time, investors know there is a ~% chance every year that Taiwan gets attacked or blockaded, and that company won't be selling anything for half a decade, minimum. It's like betting on the Death Star fully knowing the exhaust port issue exists. Complete with "but surely our fighters (er, US government) will prevent anyone from actually hitting that port." At this point, I just believe the entire stock market is irrational and in the stratosphere; simply because, where else are you going to invest? Too many investors, not enough companies. But what goes up... (Edit: I'm primarily referring to Apple here. I am aware NVIDIA primarily uses South Korea - but at the same time, if something were to happen to Taiwan, even NVIDIA will need to prioritize fab capacity.)

dinkblam 3y ago
looking at the stock market we can conclude that a taiwan invasion is deemed quite unlikely by investors. another million dollar question: is the likelihood of another magnitude ~8 SF earthquake priced into nasdaq?
Negitivefrags 3y ago
I would absolutely bet on the Death Star knowing the exhaust port issue exists. Just because some 1% chance that a new Jedi comes along actually happens doesn’t make it a bad bet.
slingnow 3y ago
You're right. And to continue with this kind of reasoning: there's definitely a non-zero chance that humanity is wiped out by a large asteroid collision, or a fast spreading lethal disease, or nuclear war. Therefore since there's a non-zero chance that everything in the future will be worth exactly zero, everyone should stop investing in the market immediately.

skeeter2020 3y ago

What if you bought Apple in 1995? or 89? Would you have remained solvent long enough to make it to 2024? In the market timing is both 1. everything and 2. impossible to predict without cheating.

marvin 3y ago
Don't invest on margin, ever.
- _zoltan_ 3y ago
  That's not right. Margin is a great tool.
- Sohcahtoa82 3y ago
  I would not invest long term using margin. The interest rates would likely eat any profits unless you got lucky on a bet. Short term, though? Nah, you should absolutely trade on margin. I started investing in 2020 immediately after markets hit rock bottom from COVID. Margin multiplied my gains as I bet on the market bouncing back. You could certainly argue that I was just lucky. I could have easily been wrong and it's possible markets could have taken a longer time to recover than I expected. But tbh, the market recovered significantly FASTER than I expected.
  - marvin 3y ago
    By definition you're risking more than 100% of your portfolio value when trading on margin, even short-term. One wrong bet can wipe you out. You shouldn't delude yourself to believe that this isn't the case because you've had one successful experience with it. Risking getting wiped out may be a palatable prospect if you're early in life and have the time to rebuild your fortune, but it won't be if you're risking 20 years of savings.

adra 3y ago

And if you did the same move with blackberry at the same time, you'd have lost most of your investment. What's your point? That survivorship bias is still alive and running in the modern world?

dehrmann 3y ago

AAPL wasn't riding any hype waves in 2005.

hu3 3y ago

Survivor bias plays a strong role in these conversations. There were a ton of promising companies back then that no longer exist today. But you don't hear about then in HN.

deepakhj 3y ago

I've been loading up since 2006-2007... every quarter I get more shares from dividends. Also bought META at IPO. I only had to sell AAPL/META for a downpayment.

mancerayder 3y ago
are you still accumulating at these prices?
- deepakhj 3y ago
  I haven’t in a bit only because buying a house has stretched me thin, but hope to start putting money in again in a few months.