I have a wealthy friend who asked the following question today: What are the odds of Google and Apple hitting $1,000/share, respectively, in the coming 18-30 months?
I don’t have a clue, but it doesn’t seem too far fetched. Which stock will get there first? No idea. This is a great topic to remind ourselves about luxury goods from Econ 101. Between Google’s IPO in 2004 until 2007, investors couldn’t get enough – it outpaced the tech-heavy NASDAQ 100 index by 3-4x over that period. The higher the price went, the more investors demanded shares of GOOG.
This price action was no different than what you see with Louis Vuitton purses, Rolex watches, Ferraris, and trendy art. But in 2008, GOOG changed its behavior and began trading like a technology stock rather than a sought-after purse. Over the past three years, AAPL has traded in similar fashion with similar results. This week even as Eurozone worries returned to the forefront of market action, AAPL seemed to defy gravity.
High net worth folks (politicians call them the 1%) around the globe flaunt their Apple shares at parties like a gold Rolex or red Ferrari. Look at me, look at me. The more AAPL stock makes up of your liquid net worth, the cooler you feel now. This has nothing to do with ratios or earnings or any fundamentals at all since these folks could care less about them – this is about being cool and envied. I don’t know how to time when AAPL stops acting like a luxury good, but I bet it will someday sooner than later. Sadly, there just isn’t any reason to bet against it for now. When it stops acting special, you will know.
Meanwhile, I take the road less traveled. So long as the bull market is in place for 2012, I choose to own QLD or TQQQ which offer 2x or 3x the daily return of the tech-heavy QQQ ETF, respectively. Because AAPL is the single most influential stock inside the QQQ ETF now, these leveraged ETFs will better mimic its potential for continued ascent. If it loses its luxury luster along the way, even better.