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Technology Stocks : Apple Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Ryan Bartholomew who wrote (168828)	4/24/2014 8:46:49 PM
From: Art Bechhoefer	1 Recommendation Recommended By SirWalterRalegh Read Replies (1) \| Respond to of 213177

I didn't see Buffett's remarks on small transactions, so I'm not sure where he's coming from. But it's true that market pricing of stocks is determined mainly by investment decisions of large institutional investors. This in itself is an abuse of the free market system, which requires that prices be set by numerous purchases and sales that are small enough such that no single transaction affects the market price. By definition, when a large investor initiates a series of transactions that result in millions of shares bought or sold in a short space, those series of transactions do affect market prices. This is one of the reasons why high frequency trading is an abuse of the market system, in addition to the ability of HFT firms to front run their transactions before others have a chance. As to Cook, I think he's doing an excellent job. There's no reason to accept the notion that Apple has ceased to be an innovative company. Additionally, Apple has handled its stock purchases and dividend policy in a manner better than virtually all other companies engaged in buybacks and dividend increases. Basically Apple has floated bonds at historically low interest rates to obtain cash for paying dividends and buying shares. The interest that Apple pays on the bonds is tax deductible. The dividends it issues are not tax deductible. In effect, Apple is buying its stock at an interest rate of about 5 percent or less. This investment in its shares comes at a time when Apple is growing its earnings at more than double the cost of its investment. In the past, Buffett has argued for the very policies that Apple espouses – buying back shares when the company is overcapitalized in terms of its R&D needs and other needs to expand. Buffett frowns on dividends mainly because dividends are taxable, whereas allowing a stock value to increase through natural earnings growth and repurchases of stock is not taxable until you decide to cash in the profits. Dividends, when Buffett made his views known in his Berkshire Hathaway letters to shareholders, were taxable at a higher rate than capital gains. The rates are approximately the same today, which is why Apple's dividend policy is in accord with Buffett's approach. Incidentally, I believe that it's bad tax policy that dividends should be taxed at the same rate as long term capital gains. This encourages investors to avoid risk and go for companies that grow their earnings at a lower rate, preferring to increase their dividends instead. But that's another issue altogether! Art