Investing, Personal Finance

Investing Hack: Why I bought $199 in Apple Stock Instead of a New Apple 3G iPhone

iPhone 3G

I’m a big fan of index funds because, quite frankly, I don’t know much about investing and I would rather spend my time doing other things than learning how to invest in individual companies. Warren Buffett agrees with me on this as his response to a question at the Berkshire Hathaway annual shareholder meeting:

“If you were 30 years old and had no dependents but a full-time job that precluded full-time investing, how would you invest your first million dollars, assuming that you can cover 18 months of expenses with other savings? Thank you in advance for being as specific as possible with asset classes and allocation percentage.”

Buffett let out a small laugh and began. “I’d put it all in a low-cost index fund that tracks the S&P 500 and get back to work”

That is exactly what I do with most of my investments – I place them in low cost index funds and go about my other business without having to worry about them. It’s simple, it works and it gets a good long term rate with little effort. That’s pretty hard to beat.

Then there is another little part of me that wants to pick individual stocks and make that investment “killing” that everyone reads about in the financial pages. Here, I rely on the advice of Peter Lynch who puts forward the advice “invest in what you know.”

I don’t know a lot of things, but I do know when I see gadgets that I want. I really wanted to get the new Apple 3G iPhone, but I know if I can wait a few months, I will avoid the “early adopter premium” and can get it for a discounted price when all the hype and newness has worn off. It will also give them a chance to work out any bugs that might be there.

What did I do instead? I took the $199 and bought some Apple (AAPL) stock. This little investing hack has worked wonders for me. I consider myself pretty average, so if I’m excited about something, there is a good chance that there are a lot of other people that are also excited about it. I take this as my cue of “invest in what you know” and instead of buying the gadget that I want, I but stock in the company for the amount the gadget would have cost.

So when the iPod came out which I really wanted, I took the $399 price and placed it into Apple stock in October 2001. Even with the terrible stock market we are currently having, that $399 is now worth over $7000 today, a gain of 1700%+ over that time. When the original iPhone was released in June 2007, I wanted it, but instead placed $599 into apple stock. It’s now worth about $840 today, a 40% gain over that time. So when the Apple 3G iPhone went on sale last week, I took my $199 and bought some Apple stock again (even better, I avoided waiting in those horrendous lines).

I do this with all the gadgets that I want (not just Apple) and while some don’t work out as well as I hoped, overall I am way ahead of the S&P 500 using this method. It’s an easy hack and if you trust your instincts on the latest gadgets, it can make you a pretty penny in the process.

Image courtesy of waltarrrrr

21 thoughts on “Investing Hack: Why I bought $199 in Apple Stock Instead of a New Apple 3G iPhone

  1. I am completely clueless when it comes to buying stock. How, exactly, do you buy shares of Apple? What are the steps you took? Do I need a broker? Do I sign up for ETrade? It seems way to complicated and mystical to me. If you could break it down into simple steps, I might actually learn something! Peace. 🙂

  2. Rose – You can open an individual trader account with TDAmeritrade, ETrade, Schwab, or any other discount online broker.

    Then it’s time to do some homework on the companies you are interested in. Are they financially stable? Do they actually make money on their core product? Are they historically moving lower or higher?

    A good resource, as much as he can be annoying, is Jim Cramer’s Mad Money on CNBC or Also pick up a book on investing.

  3. I’d wait before celebrating too much… Apple is doing great now, sure, but that doesn’t mean they’ll keep with it forever. A lot of analysts feel that way, anyway. Just as soon as you can gain that money, you can lose it again.

  4. I like Warren Buffets comments. He seems to be straightforward. I however am still unsure about apple’s performance. The new 3g iphone was great, but their still working out the kinks.

  5. I have the opposite effect. I look at some new gadget and think, “who in the world needs one of those?” and soon everyone has one. That’s what I thought about cell phones when I saw the first one. One could pick stocks based on what I think is the silliest invention ever.

  6. Apple’s symbol is AAPL on Nasdaq. I invested $500 in 1997 in Apple. It split twice and is worth about $9000.

  7. Your method for avoiding the penalties associated with ‘early adoption’ is clever and appreciated.
    I only wish I’d thought of it first!

  8. This logic would also have led to you buying Countrywide stock because you took out a loan from them. What you’ve done is different than what Warren Buffet suggested and is bad advice unless you are looking for the gambling thrill. The problem is that you’re making an undiversified bet.

    Without going into details about why this is a bad idea, invest your money in a well diversified portfolio instead. I like balanced funds (60/40 split) but you have to decide how much risk you want to take. You won’t turn $500 into $7k in 7 years but you also won’t have $0. Over that time frame there’s a pretty good chance that you’ll have $1k.

  9. You bought 1 share of apple stock?

    Let’s say you had a transaction fee of $10. Now you’re automatically 5% in the hole.

  10. Uri: I think if you read the article, you’ll notice the author does most of his/her investing in low cost index funds. For all we know, $199 could be less than half a percent of his total portfolio.

    Aside from that, these are small amounts, and he/she isn’t saying you’ll win every time, but they are simple trades based on a reasonably sound principle.

  11. I do something similar. Whenever I have an urge for a Coke, I buy KO stock instead. I have a DRP account in KO, so I reinvest the dividends that the shares generate, and I incur minimal fees. Still have to pay taxes on the dividends, though. Helps with the diet!

  12. This is a very interesting article. I am one of those guys who does not have a clue about investing, but knows it’s somehow good. I visited ETrade and it was so overwhelming! Any good guidelines on how to apply what the article spoke of for a totally new person?

  13. 1
    Written by: Rose-July 16, 2008 at 5:59 am

    I am completely clueless when it comes to buying stock. How, exactly, do you buy shares of Apple? What are the steps you took? Do I need a broker? Do I sign up for ETrade? It seems way to complicated and mystical to me. If you could break it down into simple steps, I might actually learn something! Peace. 🙂

    Rose, before you give your money to ANYONE to invest for you, please read the book:

    Brokerage Fraud-What Wall Street Doesn’t Want You to Know by
    Tracy P. Stoneman & Douglas Schulz.

    They are former securities arbitrators who point out all the minefields you are likely to encounter when dealing with brokerages. Save yourself time and money by educating yourself BEFORE you swim in these treacherous waters! Good luck.

    Recommended reading:
    E. F. for those who know nothing about financial planning

  14. Pingback: Growing Money » Blog Archive » Carnival of Personal Finance #162
  15. I love your investing thoughts!

    Another low cost investment company is Sharebuilders which is now associated with ING. You can invest for $4 per transaction whether you are putting in $10 or $1000. I personally use them and wait until I have $100 in the account before buying shares of anything.

  16. Hi again!
    Well, I just read up more and still do not have much of a good idea. Any treads for total beginners?

  17. @ Ash

    As I mentioned, almost all my investing is through low cost index funds. The individual money I put toward gadget stocks is “play money” – when I have the urge to try something different with extra money I have squirreled away. I would not recommend this as a primary investing strategy.

    I have an Etrade account where I do my trading. If that is too complicated for you, I would start by going to a broker that can give you a bit more detail on how things work like Charles Schwab – then as you become comfortable, you can move to do it yourself. Visit you local library and start reading as well.

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