Apple's Devoted Shareholders Get Rich, And Hang On

23 Mar, 2012

When Anton Marinovich turned 18, his grandmother gave him $1,000 with strict instructions to invest in the stock market. He chose Apple Inc.

Seventeen years later, his investment is worth more than $240,000 and will bring him over $1,000 a quarter through the company's new dividend plan.

"It's pretty bananas," Marinovich said. "I always hear about all these people here in Silicon Valley falling into huge luck, but I never thought it would happen to me," said Marinovich, who is the director of sales at Equilar, a Redwood City, California-based executive compensation consultant.

Watching Apple shares soar more than 77 per cent over the past 12 months has been a wild ride for people like Marinovich, who are firmly planted in the cult of Apple. Between him and his fiancee they own two iPhones, two MacBooks, an iPad and 400 shares of Apple.

Many loyalists bought stock years ago when shares languished at double-digit prices. The held on to it out of a love for the company and its products. Now, they are being richly rewarded by a share price of around $600 and a rich dividend payout from Apple's cash pile of nearly $100 billion.

Nearly two dozen individual Apple shareholders interviewed by Reuters say they are not going on crazy spending sprees or vacations to Fiji, despite the huge windfall they could get by cashing out. Practically none of them said they plan to sell, a loyalty that gives some of their financial planners heartburn.

That's not to say they aren't treating themselves - or breathing a little easier.

Marinovich said the comfort of his Apple investment cushion means more freedom in his spending habits. He recently bought himself a $2,000 Omega watch and is shopping for a new Audi to replace his Volkswagen Jetta.

Retiree Pat Harshbarger, 79, has seen her $13,800 investment in Apple rise to $46,000. That paper wealth has made the former nurse comfortable enough to consider taking a few more trips to Maine to visit family and one to Las Vegas, where she and her husband want to try their hand at the slot machines, she said.

Seventy-one years old Stan Merkin, a retired Dell and IBM programmer whose portfolio has gained about $100,000 just by buying Apple since late last year, said he will buy another 50 shares if the stock hits $650.

"What I have made in Apple gives me comfort about how I can live in retirement," he said.

Many loyal Apple shareholders see the stock as a "safety net" for their futures, one they believe only goes up.

"I am a firm believer in the company," said Marinovich's 31-year-old brother Erik Marinovich, who also bought 50 shares of Apple with money from his grandmother. The investment is now worth $60,000 more than he paid. "I am going to stay in this until retirement."

Emotional Attachment

For Apple lovers in their 30s and 40s - those who bore the brunt of both the dot-com crash and financial meltdown - holding Apple feels a responsible move.

Nate Landau, 38, lived at the edge of the dot-com boom and bust. He has worked at eight different companies, mostly in the technology sector, since 1996. He still remembers the night his father brought home Apple's first computer, when he was 10 years old.

"I just remember using Mac Paint and really being blown away," said Landau, who once insisted a new employer provide him with a Mac even though the rest of the company had PCs.

"I see Apple as my rainy day fund," said Landau, who is now managing director of Internet publisher Food Republic. His investment of $15,000 in Apple stock 12 years ago is now worth $60,000 even though he sold 200 of his 300 shares.

Kristi Faulkner recalls a similar experience when she saw her first Mac Classic in a high school art classroom in Grand Prairie, Texas.

"It had this little, tiny four by six screen and it was the coolest art tool I had ever seen," said Faulkner, who with her two daughters currently own two Mac desktops, three MacBooks, two iPhones and countless iPods, iTouches and nanos.

Faulkner, now 44, is president of Womenkind, a marketing agency that targets women. She still feels a strong connection to Apple - one that extends to her stock.

"Apple made computers accessible to me as a girl and as an artist," she said. "If it dives tomorrow, I am not selling."

That kind of emotional attachment makes financial advisers more than a little nervous.

When Faulkner signed up with a financial adviser a year ago, all of her savings was invested in Apple and Internet search giant Google.

"She told me to sell it and I said, 'are you kidding'," Faulkner said. She did trim back from 250 to 155 shares in Apple, but still made more than $82,500 off Apple since 2005.

Financial advisers regularly warn Apple groupies to get out of owning so much Apple - before they regret it.

"My broker is constantly calling me to tell me to sell it," said Jeff Gonzalez, a 31-year-old advertising director whose portfolio has gained more than $16,500 from the 31 shares of Apple he bought in 2005. "Every week I call him up and say 'Look you are wrong, it's gone up again'."

"Nothing is going to make me sell," Gonzalez said.

Even Apple lovers who are in the financial business have a hard time staying objective.

Matt Reiner, a 25-year-old financial adviser whose investment in 40 shares of Apple has gained about $11,000, knows he should get out while the going is good.

"I know there is so much euphoria around Apple, but it's very hard to sell a stock which seemingly has its products in everyone's hands," he said.

Tough Times In The US-China iPad Smuggling Game

Early on the morning of March 16, Wong Tat joined a line of about 100 people waiting for the launch of the new iPad in a chilly rain outside an Apple store on the outskirts of San Francisco.

When the doors opened, he was among the first to buy his quota of two iPads -- the maximum Apple Inc allows per person. Then, sporting a bright red cap for easy identification, Wong began to direct a stream of people toting their new tablets to a silver Mercedes SUV in the parking lot.

After about two dozen of the neatly boxed iPads had been put in the trunk, the SUV sped to a nearby run-down hair salon and massage parlor. There, th e haul of the tablets costing about $12,000 was transferred to red, white and blue wholesale bags, which Wong then spirited out the back door into another car.

"They are headed for China," said Amy, a 30-something hair stylist at the salon who had joined in the pre-dawn operation outside the Apple store. She would not divulge her last name.

The iPads had embarked on the first leg of a journey that would ironically return them to the country where they were assembled in the first place. They may have been stuffed into suitcases and taken by passengers on a flight to China, or possibly flown by courier to the duty-free territory of Hong Kong and smuggled in students' backpacks across the border into mainland China.

Demand for Apple products, coupled with severe constraints on local supply, has created a thriving black market. A 16-gigabyte iPad bought in San Francisco for $499 -- about $540 including tax -- can be sold for more than $1,000 in Shanghai the next day. Apple sold more than 3 million of the devices -- which now come 4G-ready with a sharper "retina" display -- in its first weekend.

"You can pretty much determine when the first iPad arrives in China by monitoring the first flight out from the US on launch day," said an Apple employee who was not authorized to speak on behalf of the company.

Companies that make iPad accessories, such as cases and speakers, also hire people to wait in line on launch day, a source involved in that business said.

Accessory makers do not get an early peek at Apple products, so they have to scramble as soon as new iPads and iPhones hit the streets to reconfigure assembly lines and craft accessories that fit, he said, speaking on the condition of anonymity.

Serious Money

People like Wong, dubbed "huangniu," or yellow-bull black-market operator in Chinese, have operated richly lucrative businesses. They pay people like Amy -- code-named "nurses" because the word "hush" sounds like "helpers" in Chinese -- $20 to $30 to stand in line and buy an iPad and iPhone for resale on the black market.

Factor in as little as $12 to ship each device via a Chinese shipping agent, and small wonder Wong and his ilk found it worth their while.

But it's getting tougher and costlier to smuggle the devices into China as the Chinese customs authority has told some US-based shipping agents not to accept orders of iPads, and warned travelers to declare their gadgets at the border and pay a 10 per cent import duty on electronics.

Two small shipping companies that ship to China, BLZ Express and Global Courier Services, said they now refuse iPad shipments. Fremont, California-based BLZ posted a notice on its website this month saying: "Our clearing warehouses have stopped receiving iPad in accordance with a recent customs authority notification."

UPS and FedEx, the largest US package delivery companies, did not return messages for a comment.

In Shenzhen, across the border from Hong Kong, an online report from the state-owned Guangzhou Daily -- a mouthpiece of the local government -- said the newest iPad was among 20 taxable goods that should be declared by travelers.

"I stopped carrying iPad a few months ago because now the customs at Shenzhen can be pretty strict," said a Chinese student in Hong Kong, who declined to reveal his payoff for smuggling.

Furthermore, Apple now simultaneously launches devices in multiple countries, boosting availability and depressing black market prices.

"It's getting really hard to do this compared to previous years," said Amy, who wore a dyed red streak in her hair, as she trimmed a young man's "faux-hawk" hair style in the San Francisco area salon.

An electronics dealer in Oakland, California, said he struggled to break even this year, a far cry from previous iPad releases when he shipped upwards of 1,000 tablets and pocketed profits of $50 to $100 per device sent to his buyer in Hong Kong.

This year, he had no choice but to send 250 iPads via FedEx -- which quotes $110 to ship a 2-pound tablet to China -- hours after they hit US stores. But the same-day launch of the tablet in 10 territories, including Hong Kong, curtailed demand.

"This whole game is over," the dealer complained. "There's an overabundance of supply. The market's flooded."

He said he visited only a couple of stores in the San Francisco Bay area for tablets, with the Chinese black-market selling-price falling every day that passes.

Wear It With Pride

Despite that expansion in inventory, demand in China still outstrips supply. Online retail site Taobao.com carried iPad listings last week for as much as $1,100, though $600 to $700 price tags were more common.

IPads and iPhones have become badges of Western chic and status to upwardly mobile Chinese, yet they are usually the last to be able to buy them directly from Apple stores.

Industry sources say smugglers operate out of multiple countries, but mainly in the United States because that is where stores carry the most products.

Last Friday in Hong Kong, stores ran out of the newest iPad within hours. They are now sold via a daily lottery there, while they are still readily available in many US stores.

The Chinese "nurses" are easy to spot -- they stroll in, hand over a note describing the model they want and leave as soon as they get it. Whereas an ordinary buyer will often take their gadget out for a test drive before leaving the store and ask sales employees numerous questions.

"Apple has gotten so big that they can flood the market. Before they released it, they probably had been making them for six months and had them sitting in a warehouse. Now they are selling it in Asia and Australia, and it's out 16 hours before us," said the Oakland dealer.