For Apple (NASDAQ:AAPL) shareholders in the UK, 2022 hasn’t been a great year. A £1,000 investment in Apple shares made at the start of the year would be worth £866.34 at today’s prices.
Part of that is the result of the dollar strengthening against the pound. But it’s also due to the Apple share price being 22% lower than it was at the start of the year.
Over the longer term, the story is quite different, though. By my calculations, a £1,000 investment in Apple stock made five years ago (with dividends reinvested) would be worth around £2,073.64 today.
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According to Warren Buffett, investing is about buying quality businesses at reasonable prices. I think that the case of Apple demonstrates this perfectly.
Quality
First and foremost, the results of a five-year investment in Apple illustrates the importance of buying strong companies. I think that this is the most important principle when it comes to stock market investing.
To my mind, there’s no doubt Apple is a quality business. It generates $119bn of operating income using $39bn of fixed assets and uses the cash it generates to reward shareholders.
Over the last 12 months, Apple has paid out $14.8bn in dividends and spent $89bn on share buybacks. This increases the value of the company’s shares and allows investors to increase their stake in the business.
The result since the start of the year shows that any company’s stock can have a bad year and there are always risks with investing. But buying shares in a great company gives the best chance of investing success over time.
Price
One of the most obvious differences between Apple shares five years ago and Apple shares at the start of this year is price. At the start of this year, the stock was much more expensive than it was five years ago.
I don’t just mean that the share price had increased. The stock traded at a much higher multiple of the company’s earnings in January than it did in December 2017.
Five years ago, Apple stock traded at a price-to-earnings (P/E) ratio of 16.5. At the start of 2022, the share price represented a P/E ratio of 29.
The P/E ratio isn’t the only way to evaluate how expensive a company’s stock is. But I think it gives a good illustration in this case of how much more expensive Apple stock was at the start of this year compared to before.
Apple shares
As someone who owns Apple shares in my portfolio, what should I do today? For me, the difference between the 1-year return and the 5-year return highlights the importance of being patient with investments.
Buying shares in a good business at a decent price isn’t a guarantee of investment returns. Any company’s stock can do anything in a particular year.
Over time, though, things tend to work themselves out for strong businesses. As a result, I’ll look to hold onto my investment and take advantage when I see the stock trading at an attractive price.
