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Get a Free iPad Every Year with P2P Lending

by Peter Renton on April 5, 2012

I read this article on USA Today earlier this week about Apple stock. Basically a reader sent in a letter asking if he could have Apple pay for a new iPad by investing $10,000 in Apple stock and using the gains to buy a new iPad in a few months.

Are you kidding me? I am a huge fan of Apple and the stock has been on an amazing run. But it is currently close to an alltime high and it has the largest capitalization of any company on earth of nearly $600 billion. This reader wants to eek out a 7-8% gain so he (I am assuming it is a guy) can use the gain (net of taxes) to buy a new iPad.

Let’s just look at Apple’s stock performance in the first quarter. If you had invested $10,000 in Apple stock on December 31st 2011 and cashed out at the end of the quarter you could have afforded to buy yourself six iPad’s even assuming a large tax bite on your gains. What’s not to like?

This flies in the face of pretty much every piece of investment advice you will ever read. So I am surprised not just that USA Today printed the article but gave the question fair consideration. At the very end of the article the author did provide a caveat that this may be a risky proposition but he also said those fateful words: “maybe this time is different”.

Owning one individual stock, even if it is Apple, is about as risky as it gets when it comes to investing. In the next three months Apple’s stock could indeed be up 8% or it could be down 10% and no one, not even the ghost of Steve Jobs, knows which one of these scenarios is more likely.

A Better Idea Than Investing in Apple Stock

Here is an idea for this reader. Invest $10,000 in Lending Club or Prosper. Take a medium risk portfolio with an average interest rate of around 15% or so. Invest across 400 notes so you are well diversified with $25 per note. Then wait for the payments to come rolling in.

You don’t even have to wait until you get the 8% gain – you will have enough of your money back to buy your iPad within three months. Of course, some of this will be principal and some will be interest but, hey, this guy is in a hurry.

A new iPad costs $499 for the base model. If you earn 8% on your $10,000 and you will be able to buy yourself a new iPad every year with the p2p lending gains realized even taking into account the impact of taxes.

And with a well diversified portfolio it will be unlikely you will ever lose any principal. The same cannot be said for owning Apple stock.

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{ 3 comments… read them below or add one }

Louis Lamoureux April 6, 2012 at 7:19 am

Disclosure: I am long Apple.
I hope you’re not advocating skipping the stock market altogether and just investing in LC/Prosper. I hope what you’re saying is having just one stock is a bad idea.
I wouldn’t advocate having just one stock like Apple any more than I’d advocate just one loan on LC or Prosper, but Apple could be part of a well rounded stock portfolio. If you look at Apple’s earnings and their PE ratio, they deserve that market cap, if anything, I would say they are undervalued. If you look at their PE ratio it’s around 18 as of today. The S&P average is somewhere around 16 one could argue that Apple is growing fast and deserves a higher ratio. If you look at their earnings growth they are on a great trajectory, so I think the market cap is a tad low. Also, you’ve gotta factor in that unprecedented $100B in cash they’ve got sitting on their balance sheets.
At some point, they’ll saturate the market and earnings will slow or they’ll face a competitor that drops them to their knees, but avoiding the stock now because of something that might happen is silly. Jim Cramer recommends an hour of homework per stock per week. He calls it Buy and Homework, not buy and hold.
Lou
PS the link to the article is broken.

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Mike April 6, 2012 at 3:23 pm

The vast majority of my stock holdings are in Vanguard Vipers and other low cost index investments. I also hold a few individual stocks, and was fortunate enough to buy a few hundred AAPL shares below $100 a few years ago in tax-sheltered accounts. The returns on that investment alone have funded my daughter’s college education, plus grad school if she chooses. Hitting singles consistently via LC and index funds is an excellent way to raise your batting average, but those walk-off grand slams are incredible when they come along.

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Peter Renton April 6, 2012 at 3:38 pm

@Lou, I am certainly not saying that participating in the stock market is a bad thing. I have far more money in the stock market than I do in p2p lending and that will likely continue for some time. I am simply saying that relying on one stock for a short term gain is akin to gambling, even if it is Apple. Being long Apple is one thing – there is still some good potential long term upside in my opinion but no one know what direction the stock will take over the next 3-6 months.

I like your analogy with owning just one loan. Owning a diverse basket of loans is as important as owning a diverse basket of shares. The link to the article is working for me.

@Mike, Well for let me say congratulations on your great decision to buy when you did. But also your gutsy decision to hold when you had doubled and tripled your money. I agree it is fun to go for a grand slam and I have some play money that tries to do just that. But I am still waiting for the grand slam.

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