Tuesday, September 17, 2013

Stock Market: Apple - Conspicuous Consumption

(Drivebycuriosity) - Tim Cook is a bold man. The CEO of Apple provoked analysts and stockholders by doing something they don´t understand. Last week he presented the new versions of the iPhone, the 5c and the 5s. Both models cost more than $500.

The stock market responded dismissive. Since the presentation the stock price of Apple tumbled around 10%. The majority of analysts and investors believes that the new smartphones are too expensive. The skeptics claim that the high prices for the new devices will hamper sales in China and other emerging markets. Therefore Apple would loose more market shares on the emerging markets to cheaper competitors like Android suppliers.

It seems that Cook thinks otherwise. Apple is betting on a growing middle-class in China, Russia, Brazil and many other emerging markets. There is a fast rising group of affluent people who spend more and more money for luxury goods like high priced smartphones.

Apple also is setting a bet on a phenomena which is called "conspicuous consumption". This term was introduced  by the economist and sociologist Thorstein Veblen (1857–1929), in the book The Theory of the Leisure Class: An Economic Study in the Evolution of Institutions (1899), to describe the behavioral characteristics of the nouveau riche (new rich) social class who emerged as a result of the accumulation of capital wealth, writes Wikipedia (wikipedia). Those people spend a lot of money on Apple iPhones, Nike sneakers, BMW cars and other high priced goods to demonstrate their affluence and to distinguish themselves.

Apple is therefore betting that there is a fast growing number of affluent people worldwide who like to spend money on their high end products.

I believe that these bets will pay off and the new iPhones and the forthcoming Apple devices will benefit from a growing demand worldwide. I also believe that investors who show patience and long-term thinking will be rewarded with stock price gains and rising dividends in the future.

Disclosure: I am an investor in Apple.

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