I'll Have What He's Smoking

It's a paradox of investing that the enthusiasm to buy stocks, real estate, artwork, gold, etc. increases as the asset price rises. The passions are most intense right before a crash.

Lately I've become worried about the action in Apple shares (yesterday's price was $605.96) when Morgan Stanley predicted a $720 price by March, 2013 and $960(!) by December, 2013.

Morgan Stanley analyst Katy Huberty placed an end-2013 target of $960 on Apple, which would leave the stock up a whopping 69% since Tuesday’s close and more than triple its 52-week low of $310.50 set last June.

Not to be outdone, Forbes columnist Eric Jackson projects a $1,650 (!!!) price in less than four years. He builds his case around growth in four current products--iPad, iPhone, Mac, and iTunes--plus two new businesses--iTV and iPay (mobile payments).

I have trouble getting my mind around his number. Apple's market capitalization would be over $1.5 trillion, nearly three times today's value. The share price would increase by 29% per year for the next four years...and that return doesn't even take into account the $2.65/quarter/share dividend that Tim Cook just announced (finance humor, people).

The smoke is getting heavy in here. I'm going to have to leave the room.
© 2012 Stephen Yuen

Publication of this 2000 book signalled a market top. The Dow is currently 13,150.