April 28, 2022

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Happy Thursday to you. Apple's total revenue in 2021 was a whopping $365.8B (basically $1B per day!). Can you guess what percent of that revenue came from iPhone sales? a. 10.5%, b. 18.7%, c. 52.5% Follow the wave 🌊 below for the answer.

Here are the topics for today 👇

The dominance of Apple
Hack your way to homeownership
What should you do with your home equity?

INVESTING

The Dominance of Apple

Just a few months ago, Apple became the first public company to ever surpass $3 trillion in market cap, and it still remains the largest US company by a whopping $600 billion dollar margin.

Ironically, a company this monstrous gets far fewer interesting headlines than smaller companies, largely because it’s become such a mainstay that we hardly even question it. Apple is Apple, and it’s been one of the best boring investments to make over the last ten years, but what about the next decade?

Apple’s historical performance

Since its IPO in 1980, Apple has returned shareholders over 237,000%. More recently, Apple has produced a 363% return over the last 5 years alone, which is over 4 times the S&P 500’s yields in that same period.
Apple has also undergone 5 splits during its time on the market, with the most recent of those coming in 2020 on a 7-for-1 basis. Without those stock splits, each share of $AAPL would be worth about $2,000 rather than $163 (where it is today).
It does look really impressive on paper, but it’s also paramount to realize that much of those gains have come in the very recent past because Apple has approximately quadrupled in value over the last 4 years alone.

Future prospects

Apple’s dominance: Dominance has played a key role in their performance so far, and will continue to do so going forward. Apple essentially pioneered an entire industry—with high barriers to entry— that has radically changed the world as we know it. There is no “true” competition here. Not just any company can build multiple revolutionary operating systems, devices, online services, and integrate it all seamlessly. Apple is quite possibly the first mover of all first movers. More entrants and competitors are coming along, but Apple is still Apple, and this bodes very well for its future prospects.
Financials*: Apple just posted another record for their Q4 2021 earnings, raking in almost $124B in revenue, an increase of 11% year-over-year (YoY). They also upped their free cash flow (FCF) by 26.7% for almost $93B on the year, and sit atop the pile of cash unlike any in the public markets, as they’re wielding about $200B in cash equivalents already.
Growth prospects—some concern: First it was computers, then music players, phones, tablets and all the accessories. Now, Apple is expanding into a little bit of everything, and with a sense of urgency. We’ve already explored how Apple is moving into financial services, but it's also delving into VR, and even cars. These are potentially good looks for the company since their traditional product line is bumping up against a growth ceiling at this stage. It’d be naive to doubt Apple, but it's worth acknowledging their maturity, which may make them less appealing to some investors.

So... buy and hold for another ten years, or no?

🐮 The bull case: Apple is a stable giant in a highly specialized industry that still has some decent growth prospects and promising side projects in the works. The fact that they’ve had extreme success doesn't mean the best is behind them. They’re setting their sights on new massive and growing markets (i.e., fintech, metaverse, VR and autonomous cars).

🐻 The bear case: Apple, despite still growing, is expected to slow down a bit, which may not produce the same future returns it's enjoyed in the past. Only time will tell, but if you're one who prefers to stay away from it, it’s worth investigating your funds to ensure you’re not exposed. For example, ETFs in your investment accounts are likely prone to some exposure to the stock.

*Apple will report its fiscal Q2 earnings results today at 1:30 pm Pacific Time; a conference call with Tim Cook and CFO Luca Maestri is to follow at 2:00 pm PT.

REAL ESTATE

Hack Your Way To Homeownership

Looking for ways to circumvent the often lofty cost of owning a home? Here’s a trending idea to consider: house hacking. The idea is far from new, but heck... desperate times call for creative measures, and that's exactly what house hacking is all about.

Be your own…landlord?

Hacking 101: Essentially, house hacking is when you rent out part of your home in an effort to effectively reduce, and in some cases eliminate, your monthly mortgage cost. In a sense, it allows you to own a home either for “free” or for less.
The deets: Ideally, this is achieved by purchasing a duplex, triplex, quadplex... you get the idea. You live in one unit, and rent out the others. However, this doesn’t have to be the case, homeowners of single-family units could also elect to rent out rooms, basements, etc. or even engage in gig renting for higher rates on sites like Airbnb.
The perfect scenario: Let’s say you purchase a duplex for $400K and your monthly mortgage is $2,250. Average rent for a single bedroom apartment (this home is a 2BR, 1BA in each unit) in this area is about $1,600. This is a small duplex, so say you rent it for the 1BR average at $1,500-$1,600, and boom, your mortgage is now effectively down to $650-$750.

The pros and cons of going this route

👍 Building wealth: Owning a home is, if not the best, one of the best ways to build passive wealth over a tenured ownership period. Usually, the sooner you can buy the better, and if house hacking allows you to get in early, it’s perfect.
👍 Monthly budget: Saving thousands on your mortgage will open up a lot of room in your budget to allow you to save and invest more, further contributing to your building wealth and achieving your various financial goals.
👎 Landlord duties: Some landlords can have a hands-off approach to their properties and let a manager handle most things. In this case though, that’s going to be kind of difficult, because you’re quite literally right next door. Strong tenant vetting and good boundaries are key.
👎 Approval: If you can’t afford the monthly mortgage on a property, a lender isn’t going to approve you with the caveat that you can afford it once you find a tenant for the 2nd unit. So, unfortunately this trick doesn’t fully circumvent the income problem prospective homebuyers face in this uncertain environment.

✍️ Here's a related lesson on this topic:

Mortgage Fundamentals

Housing

5 mins

WEALTH

What Should You Do With Your Home Equity?

With house prices having ballooned the last couple of years, many longtime homeowners or those who got into the market before the pandemic are suddenly finding themselves sitting atop a pile of equity that wasn’t there before. An almost $10 trillion dollar pile, to be exact.

It can be a weird feeling at first. It’s not quite real money, but it is tantalizing to say the least knowing it's there and available, especially if you’re getting offers from buyers and equity lenders left and right.

So, what should you do with it, if anything?

💰 Sell the house? Selling a home you have some equity in can be good sometimes, but not all the time... If you’re just looking to buy a similar property in the same area right away, don’t bother, it might just be an even exchange. If, however, you’re looking to move, retire, downsize, or something of the sort, now might be a great time to do that, just in case prices do fall like many are anticipating.

⚒️ Use equity for good? You could pull out your equity and use it to invest for retirement or something, but is that really worth giving up the progress you’ve made on your mortgage? Maybe, it depends. Or, maybe the home needs some remodeling and it's well worth taking out the equity because you also get the tax deduction too? It could be a good idea, especially if you’re looking to sell for a good reason, and/or it wouldn’t take using too much of the equity to do it.

🍸 Do nothing at all. Sometimes things are better in theory than reality. So, while taking out a home equity line of credit (HELOC) and using that money for something seemingly profitable sounds nice, it can often be a hassle and stress inducer too. Sometimes, just knowing you’re in the green is more than enough.

🔥 TODAY'S MOVERS & SHAKERS

Meta (+17%), despite missing on revenue expectations and the company plans to scale back spending; however, after losing 1 million users last quarter, their user base increased by 4% to 1.96 billion daily active users in this latest quarter
Teladoc Health (-45.5%) a US telemedicine and virtual healthcare company, was downgraded by several analysts after the company slashed its outlook and warned of competitive pressures
Bitcoin (BTC) +1.8% to $39,948.20
Ethereum (ETH) +2.6% to $2,941.28

This commentary is as of 10:15 am PDT.

🌊 BY THE WAY

Answer: iPhone 📱 sales made up 52.5% of AAPL's 2021 revenue; services made up 18.7%, wearable were at 10.5% and the Mac? A measly 9.6% (Visual Capitalist)
👛 ICYMI. Banks reported earnings—what we learned about our finances (Finny Bites)
💦 Water you waiting for? Irrigreen’s robotic smart-sprinkler is disrupting an $8.9B market by reducing water waste by ~50% and saving $600-1200 on customers’ annual water bills. Now, you can invest in the AI precision sprinkler system and capitalize on all those customer savings. But, the opportunity closes this Saturday, 4/30. Claim your shares of Irrigreen today.
🙏 Biden's looking at forgiving some federal student loan debt (CBS)
Finny lesson of the day. Since we haven't covered debt in a while, put your debt IQ and knowledge to the test (brought to you by Tally*):

Debt IQ

Debt Management

8 mins

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