Ken from Los Gatos (net worth $6.1 million) needed to raise $550,000 cash to buy a house. He listed several of his options. One of his options was to sell some of his $3 1/2 million dollar holdings in Apple Shares. He asked Bob what he thought he should do.If the caller hurried to take Brinker's advice, he could have sold yesterday at $560.28. Let's hope he at least waited until today. Apple is trading 10% higher -- it's selling right now for $640.73. The moral of Brinker's 4% rule is that sometimes one makes a lot of money by ignoring it.
Bob replied: "This is a no-brainer, Ken, this is a no-brainer. Apple is your source of funds, in my opinion -- full stop....I would sell a thousand shares of Apple. You will still have 5,100 shares. You will still be incredibly over-weighted in one stock. You will have millions and millions still in the stock after you sell a thousand shares to pay for the house.....For me, this one is a no-brainer."
One has to wonder how much Apple stock Brinker is holding. It came as a big surprise to Moneytalk listeners and Marketimer subscribers when he announced on the air a few weeks ago that he had owned Apple stock for over a decade.
In Edit: Jeffchristie sent these surprising numbers:
"I went to Yahoo finance to get the numbers for Apple. Going back 15 years from the beginning of this year Apple stock was selling at $5.22 a share split adjusted. Apple closed at $406 the end of 2011. The 15 year gain was 7,711%. An investment of $31,800 at that point in time would be what was needed to reach $3.5 million. Apple stock is up about 50% YTD. If you take the price of Apple stock today $610 and divide it by $5.22 you would have a return of 11,685% for 15 years and 4 months."
15 comments:
Just as Ken Jennings was the champion of Jeopardy, Ken from Los Altos may be the champion of Moneytalk.
Ken said he had 6,100 shares of Apple stock. I thought I would go back in time and see how much would have to be invested to get to $3.5 million on his Sunday call to Moneytalk. On Bob Brinker's website he shows 1, 3, 5, 10, 15, and 20 year performance numbers. His numbers for 15 years shows Portfolio 1 up 338% and portfolio 2 up 252% compared to his bench mark index (VTSMX) which was up 130%. I went to Yahoo finance to get the numbers for Apple. Going back 15 years from the beginning of this year Apple stock was selling at $5.22 a share split adjusted. Apple closed at $406 the end of 2011. The 15 year gain was 7,711%. An investment of $31,800 at that point in time would be what was needed to reach $3.5 million. Apple stock is up about 50% YTD. If you take the price of Apple stock today $610 and divide it by $5.22 you would have a return of 11,685% for 15 years and 4 months.
We don't know when Ken started to acquire his Apple stock since Bob didn't ask. If he has held it for a long period of time his rate of return was phenomenal.
When Bob gets a caller talking about how great they did in Ginnie Maes Bob says they hit it out of the park. Ken not only hit it out of the park he hit it to the moon.
If this was an authentic call I would have to side with Mr B, this is indeed a no-brainer. But as I expressed earlier, this call may not pass the smell test.
Someone who is supposedly worth $6M, with half of that in one stock, would call a radio host for advice to raise half a million in cash (20% of his equity stake) for a home purchase?
Was this a set up so that Robert J Brinker Sr can suggest taking profits in Apple stock not only to this caller but to his audience?
Has anyone seen my Moneytalk decoder ring?
Birdbrain,
Your Moneytalk Decoder Ring is probably right there on your finger (I'm not sure which one LOL).
You wrote this a couple of days ago:
birdbrain said...
Regarding the Ken from Los Gatos call asking advice about raising cash for a home purchase, let us listen in to the conversation with his wife concerning this important decision:
Mrs Ken: Shouldn't you consult your personal banker and enrolled agent about this matter? Mr Six Million Dollar Man?
Ken: No, dear. I'm going to trust the opinion of a financial talk show host.
A couple of days ago, Jim sent this riddle for the topic:
I liked Jeff's quiz about Hillary Clinton. I know the answer but I like the other choices he gave.
Here a question from me for others to ponder about:
Apple stock started to drop because...
A. Analyst Brian White gave it a $1001 price target.
B. Jim Cramer said it was cheap and a strong buy.
C. Bob Brinker admitted a few weeks ago he was a shareholder."
Then after I chose "C", Jim gave the answer:
"You chose the one I would have picked. However I think any of the three would be right. They are all contrary indicators."
Jim,
Looks like the good earnings bailed ended the AAPL rout. The question is will it last over the long term.
We know that Bob Brinker only recommended that Ken sell a portion of his because he was over-weighted in one stock, but Brinker did say that he wasn't selling his....
I guess Apple rebounded because Brinker advised the caller to sell.LOL
Seriously though, that stunning earnings report caught everyone by surprise. It caused that analyst I mentioned to raise his target to $1111 per share. Right now everyone is bullish on Apple and shorting the stock is considered insane. These are some classic signs of a bubble or mania.
I too wonder how much Apple stock Brinker has. He himself may be overweighted. Apple now makes up 17% of the QQQ index. For example if someone has 10% of their portfolio in the Q's they already have 1.7% of their portfolio in the stock. Buying additional shares can easily push someone over Brinker's 4% rule. I'm sure Brinker has QQQ shares too.
Steve Wozniak the co-founder of Apple lives in Los Gatos and I wouldn't be surprised if Ken isn't somehow an Apple insider or at least an employee with options.
Brinker's advice was good, Ken has far too much concentration in one stock. Hindsight is wonderful but not prudent when it comes to investing.
Apple2
I also thought Ken was probably a long term employee of apple. Many major corporations offer matching company stock in their employee savings plans. It is not uncommon of someone to have a large concentration of stock in the company they eventually retire from. If you worked at companies like Apple, Microsoft or IBM you might have enough to pay for your retirement home. People who worked at Enron, American Airlines, AIG and other failed companies end up with nothing. When the company match to your savings program comes only in that company's stock it is not easy to diversify and adhere to Brinker's 4% rule.
"When the company match to your savings program comes only in that company's stock it is not easy to diversify and adhere to Brinker's 4% rule."
It's great to be concentrated in a winning stock but not very prudent for the average investor.
When Steve Jobs died his investment in Disney was over $5 billion, more than his investment in Apple.
Jobs did not get that Disney stake through a monthly DRIP program but from the sale of Pixar to Disney.
Do you think Jobs widow should sell that stock? Not a lot of buyers for $5 billion worth of anything.
Odd that a guy who ignored Brinker's well talked about "4% rule" would ask him what to do with a stock position that was more than 50% of his net worth...
I suspect he made it up to get on the radio.
I think Brinker's advice to sell some is good. Hopefully the guy didn't sell all at once at the market open but decided to sell some over many days or weeks. Also, Brinker should have told him there could be much higher capital gains taxes to pay in the future so taking some profits now with the lowest cap gains tax rates in decades makes sense.
BTW, has Brinker mentioned his rather large Lucent position recently? I am sure he could talk about his own experience of watching the stock soar and saying Loooooooo-cent on the radio then watching it crash without cashing in...
Alcatel-Lucent plummets on bleak earnings. Alcatel-Lucent (ALU) reported Q1 net profit of €398M on a €659M gain for the Genesys sale. Operating loss of €289M vs. €64M last year. Sales of €3.21B (-12%) fell short of consensus of €3.9B, led by a 12% drop in North America. Risks in Europe "remain high." The North American transition from CDMA to lower-margin LTE gear is accelerating. Expects Q1 to be the low point on margins. Shares -13.3% premarket.
One of the Brinkers is posting over at Bogleheads. Just like the good old days.
Joey
Think about this as you love, love, love that new IPad. :)
Gadget giant Apple is avoiding billions of dollars in taxes by setting up small offices around the world to collect and invest the company's profits, according to The New York Times.
Saturday's report said an office in Reno, Nevada, where the corporate tax rate is zero, was one of many that the California-based technology giant uses to legally sidestep state income taxes on some of its gains.
California's corporate tax rate is 8.84 percent.
Record sales of iPhones and iPad tablet computers, particularly in China and other parts of Asia, saw Apple report last week that it made a $39.2 billion profit in the quarter ended March 31.
The Times quoted Apple executives who said the Reno office and others in Ireland, the Netherlands, Luxembourg, the British Virgin Islands and other low-tax places were among the legal methods the company was using to reduce its global tax bill.
The newspaper said Apple had "devised corporate strategies that take advantage of gaps in the tax code," citing former executives who had helped craft those policies.
In Reno, Apple uses a subsidiary named Braeburn Capital to manage and invest the gadget company's money, the report said, and when those investments succeed, the Nevada address shields the profits from being subjected to tax.
Former executive Robert Hatta, who oversaw Apple's iTunes retail marketing and sales for European markets until 2007, said routing transactions through Luxembourg allowed them to be taxed at low rates.
"We set up in Luxembourg because of the favorable taxes," Hatta told the Times.
"Downloads are different from tractors or steel because there's nothing you can touch, so it doesn't matter if your computer is in France or England. If you're buying from Luxembourg, it's a relationship with Luxembourg."
In a statement to the Times, Apple said it "has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules."
Read here: Apple Avoiding Billions in Taxes
To Anon, who just sent two notes containing false information about Bob Brinker recommending Apple.
I do not post statements about Bob that I know are not true.
Check your facts and try again.
"Gadget giant Apple is avoiding billions of dollars in taxes by setting up small offices around the world to collect and invest the company's profits, according to The New York Times."
True, but we must remember that tax avoidance is quite legal. It's tax EVASION that is punishable by fine and/or imprisonment.
DanG,
I totally agree with you. And realize now that my comment about it made is sound like something different.
There is nothing wrong with taking advantage of every opportunity to keep one's own money. :)
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