Compounding: Bigger Than Apple’s $3 Trillion Market Cap
“Pop, click this link and watch this. Trust me.”
My 18-year-old son had texted me on a Tuesday afternoon. Usually, I sat at my desk reading company filings until well into the afternoon without a break.
But that day, I stopped working, which was pretty rare for me.
I clicked on the link and quickly realized what I was watching was a game-changer.
On January 9, 2007, Steve Jobs unveiled the first iPhone at the company’s MacWorld conference.
At the time, Palm and BlackBerry dominated the smartphone market. PalmPilots had styluses and BlackBerrys had keyboards.
The iPhone was different. It didn’t have a keyboard or a stylus. Instead, it had a touchscreen display and just one functional home button.
It was the first handheld device that combined a multimedia player, telephone and web browser on a touchscreen display. The iPhone was revolutionary.
But I still didn’t want to get one right away. I was too connected to my BlackBerry. That wasn’t the case with my 18-year-old son, though.
Six months later, iPhones went on sale in the summer of 2007. And my son stood in line for five hours to make sure he was one of the first to get one.
I wish I had been smart enough to buy Apple shares when that first iPhone came out. Adjusted for splits and dividends, the stock was trading around $3 per share then.
But I didn’t fully understand the business…
$3 Trillion Market Cap
At the time, BlackBerry dominated the smartphone market. I couldn’t figure out if people and businesses would switch over from BlackBerrys to iPhones.
And I have a simple rule: If I don’t understand the business, I can’t value it. If I can’t value it, I have no business buying the stock. So, I waited.
It wasn’t until 2012 that I bought Apple at around $15 per share for my personal account. I understood the business much better and saw what kind of cash cow it was…
Apple sells products that consumers must have.
If you have one Apple product, odds are you have another one of its products. The average American household reports owning 2.6 Apple products.
And over the past 12 months, Apple has generated $93 billion in free cash flow! That’s the amount of cash it has after reinvesting in its business and accounting for all expenses. Simply mind-boggling.
It’s the driver as to part of why Apple became the first company in the world to have a market cap of $3 trillion this week.
Apple is a great, quality business. And since 2000, its stock is up more than 22,000%!
Now, since I own shares, I can’t recommend it in Alpha Investor. Our company has a strict policy to avoid any conflicts of interest. So, I can’t recommend stocks I personally own.
But Apple is just one example — and a great one at that — of a quality business.
Without thinking too hard, I’m sure you could pick out two to three other quality businesses. Amazon, Microsoft and Meta Platforms (Facebook) are just a few that come to mind.
So, finding quality businesses to invest in isn’t the hard part. In fact, it’s my job to do all the heavy lifting for you.
That’s what I do with each recommendation in Alpha Investor and Lifetime Profits. I tee up a quality business at an attractive price for you.
The hard part for most investors is…
Superpower of Compounding
They’re not able to sit on their hands and do nothing.
Once you buy a great business, you should not interrupt the compounding process.
You should let the business keep making money and hold on tightly to the stock — especially when the stock market heads lower.
Because quality businesses continue to do well, despite stock market fluctuations. Many times, the stock price will drop 20% to 30% … without any fundamental change in the business!
Why would one ever want to sell when Mr. Market freaks out?
But instead of sitting on their hands and letting the business — and eventually the stock — soar higher, investors get nervous and sell their position.
Then, when the stock market recovers and heads higher, they’re slow to buy back in.
In other words, they sell low and buy high. Repeat the cycle enough, and it’s no wonder they don’t make money.
If you panic and sell out of positions every time the market takes a nosedive, you’re missing out on creating long-lasting wealth by interrupting the power of compounding.
So, in tomorrow’s Real Talk, I’ll go over exactly how compounding is the key to making great returns — and how it’ll help us slay the S&P 500 in 2022 and beyond.
Keep an eye on your inbox!
Founder, Alpha Investor