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THE
SAM LETTER
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Welcome TO Manchester Capital’s
SAM: Stuff About Money!
In this issue we’re going to talk about stocks.
What Is a Stock?
Do you want to own part of a
business and make money without
having to show up at the office
every day? Or ever? Then stocks
may be a good investment for
you. In simple terms, a stock gives
you ownership in a company. If
the company grows and makes
a profit, your investment should
grow, too. If the company doesn’t, you’ll
probably end up losing money.
Companies usually issue stock to raise
money. A company’s directors and
officers decide to give up some control
of the company to raise money to
expand the business. The company
sells stock directly to investors in a
practice called an “Initial Public
Offering” (IPO). In this process,
the stock is usually listed on a stock
exchange, and investors receive a
stock certificate, which shows how
much stock they own.
The New York Stock Exchange is
the largest stock exchange in the
world, measured by dollar value;
today, there are over twenty major
stock exchanges worldwide.
After a stock is listed on an exchange,
investors can sell their stock to other
investors. When a new investor
buys stock on an exchange, the
company does not receive any
money from the transaction.
All proceeds from the sale, minus
any commissions to stockbrokers,
go to the investor who sells the
stock. The stock buyer now owns
a piece of the company.
Investors who own stock in
a company are referred to as
stockholders or shareholders. An
important benefit for shareholders
is their right to vote on important
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issues affecting the company.
Usually, shareholders get one
vote per share of stock. A common
activity shareholders get to vote on
is electing the board of directors.
The board is a group of individuals
who oversee major decisions made
by the company. Boards decide
how the money the company
makes is spent. Decisions on
whether a company will invest
in its future growth, buy other
companies, pay a dividend, or
repurchase stock are all decisions
made by the board of directors.
Another important benefit to being
a shareholder is that the most
money at risk is the value of the
investment. The government views
shareholders and the corporations
they own as separate entities. If
the company does poorly, the most
investors can lose is the value of
the stock investment.
This is a significant benefit to
owning stocks, because while
potential loss is limited, the
potential gain is not. If the price
of the stock goes to zero, you lose
all of the money you invested.
However, there is no limit to how
high the price of your stock could
go over time.
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Why Does a Stock’s
Price Change?
In theory, the price of a share
of stock is equal to the value of
the company divided by the total
number of shares of stock the
company has outstanding.
Determining the value of a
company is not easy, because value
is influenced by a number of factors,
like how profitable the company
is, how well it’s managed, how
well it performs compared to its
competitors, and what’s happening
in the larger economy.
In general, the stock’s share price
is likely to increase when the
company performs better, and to
decrease when the company does
not do as well.
Let’s look at one company and
how its successes and failures
have affected the value of its stock
over time.
THE
SAM LETTER
manchester capital management

The company is a familiar one:
Apple Computer.
It all started when Steve Jobs and
two of his friends, Steve Wozniak
and Ronald Wayne, built a kit for
a pre-assembled computer circuit
board, designed a logo and wrote
a manual. The computer was called
the Apple I, and Jobs, Wozniak
and Wayne founded Apple
Computer to market and sell it.
Though their first computer was
not a hit at first, before long Apple
had established itself as one of
the biggest forces in the computer
industry, and it continues to
innovate today.
Since Apple is a technology
company, it faces many challenges
common to most other tech
companies – even ones as large
and successful as Microsoft. As
we know, technology is constantly
changing. Just ten years ago, few
people had thought of owning a
portable mp3 player, and nobody
had heard of the iPod. With things
changing so quickly, companies
like Apple must constantly develop
new technologies. With these
challenges, Apple has had many
ups and downs, affecting the value
of the company and the price of
its stock.
In the chart that follows, we’ll look
at some events in Apple’s history,
and how they have affected the
stock price. Apple stock trades on an
American stock exchange called the
National Association of Securities
Dealers Automated Quotation
System, known as NASDAQ. Its
ticker symbol is AAPL.
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Apple Computer is founded by friends Steve Jobs, Steve Wozniak and Ronald Wayne
to sell a computer they built in Jobs’ parents’ garage. The Apple I sold for $666.
January, 1983
The Lisa (named for Steve Jobs’ daughter) was the first commercially available
computer to use the now-familiar system of using a mouse to click on files. Its
$9,995 price tag was too high for most buyers, and it’s still considered one of
Apple’s biggest blunders.
May, 1985
Aldus releases PageMaker 1.0 for the Macintosh. Along with the
$7,000 Apple LaserWriter printer, the Macintosh has finally found its
niche: desktop publishing. Mailboxes and campuses are inundated with
Mac-generated fliers, newsletters and brochures.
September, 1985
Apple loses over $17 million in a three-month period, and CEO
John Sculley restructures the company, leaving 30-year-old
Chairman Steve Jobs without any day-to-day responsibilities.
He quits the firm he co-founded and founds NeXT Computers,
paring his Apple stock holdings to a single share.
January, 1986
Macintosh Plus breaks the 512-kilobyte RAM barrier
and ships with a whopping one megabyte of RAM.
The machine is a huge success, selling in the hundreds
of thousands before it’s retired in 1990.
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12.93
10.65
9.63
Apple Stock Prices
9.26
10.3
9.98
9.19
9.31
8.26
7.36
3.22
1.80
3.82
4.62
2.51
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4.09
3.32
06/1985
2.87
03/1985
3.02
9.59
THE
SAM LETTER
manchester capital management
October, 1991
Apple’s PowerBook brings portable computing within reach. Its smaller size and more
ergonomic design make it the model for many modern laptops.
Apple and IBM agree to a technology-sharing alliance that also includes Motorola.
The partnership creates the PowerPC chip, which powers an entire generation of Macs.
May,
MAY, 1994
The Mac’s tenth anniversary launches three new models with the new
PowerPC chip. For the first time, Apple prices are competitive. Later that
year, Intel recalls its Pentium chips due to a flaw and Microsoft delays its
new operating system, Windows 95 — good news for Apple.
August, 1995
Apple’s new laptop becomes the laughingstock
of the industry when a defect causes its battery
to burst into flames while being recharged.
Although Apple corrects the problem and
cuts prices to dealers, there’s a lot of bad press.
Meanwhile, Windows 95, which Apple users
call a poor imitation of the Macintosh operating
system, sells 1 million copies in its first four days.
16.11
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12.43
11.79
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14.39
13.93
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10.17
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10.84
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9.43
8.3
8.13
8.23
7.13
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9.28
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12/1995
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AUGUST, 1998
The Macintosh returns to an all-in-one design, with different colored cases. The
machine is a hit and saves Apple’s consumer market. More than 6 million of the
original-edition iMacs are sold by early 2003, when the model is retired.
November, 2001
Finally, a Mac gadget sticks. The iPod’s timing and design are just
right, and the device embodies the Macintosh spirit of being simple,
elegant and personal.
Apple announces it will abandon its previous operating systems in favor
of a new, “next-generation” system, Mac OS X. The system is based on
work Jobs did at NeXT during his time away from Apple, and its roots
in the Unix operating system give it power and stability.
April, 2003
Building on the success of the iPod, Apple starts
selling online music for just 99 cents per song,
downloadable directly into an iPod. By February
2006, Apple has sold 1 billion songs.
we changed the scale of
the chart on these pages because
the stock price increased so much.
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33.95
26.19
11.84
8.86
06/2002
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25.7
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7.17
15.83
09/1999
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11.58
06/1999
3.28
8.98
03/1999
5.42
12/1998
3.56
09/1998
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10.23
THE
SAM LETTER
manchester capital management
January, 2006
Steve Jobs stands with Intel CEO Paul Otellini of the rival Windows/Intel alliance to
show the first Intel-based Macintosh. There’s some wild speculation that this may be the
first step toward Apple-manufactured PCs that can run…Microsoft Windows.
June, 2007
Apple unveils the iPhone and turns the smart phone industry upside down. This is not
just another phone — it’s a platform delivered on a handheld device, raising the bar for all
smart phones and starting a wave of innovative new product features from competitors.
june, 2008
Apple’s market cap (which represents the company’s total value, calculated
by multiplying the number of Apple shares by the price per share) has
exploded from less than $2 billion when Jobs returns to more than $150
billion, with a 14% share of the home computer market to boot.
What will Apple’s future — and its stock price — look like? Nothing is
certain except that it’s bound to be as full of surprises, innovations, and
ups and downs as the company’s last 30+ years have been.
Isn’t it amazing, though, to think that if you had bought one share of Apple
stock in 1984 for $3, it would be worth over $160 today? That’s an annual
growth rate of over 18%. If you bought the stock in 2001 and held onto it,
the compounded annual growth rate for your investment would be over 40%!
198.08
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158.95
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$151.68
143.5
122.04
92.91
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76.98
71.89
62.72
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41.67
36.81
32.2
08/2008
07/2008
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06/2007
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09/2003
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13.52
Ask SAM
Q. What is GDP and why is it important?
A. GDP stands for Gross Domestic Product, an
important measure of the health of a country’s
economy. GDP represents the total goods and
services a country produces over a specific time
period, typically reported every three months.
In the United States, about 70% of what is produced
is for personal consumption, and the other 30% is
used for investment and government spending.
GDP is important because we can use it to determine whether the
economy of a country is growing more quickly or more slowly than the
previous quarter. GDP is also used to compare the size of economies
throughout the world.
Q. What is a Recession?
The official definition of a recession is when Gross Domestic Product
(GDP) growth is negative for two consecutive three-month periods or
more. Many people who study the economy also look at other economic
indicators to determine whether a country is in a recession. For example,
when there is a combination of a decline in industrial production, higher
unemployment, a decline in income, and falling housing prices, many
experts will say the country is in a recession.
If you’d like to suggest a topic or have a question you’d like answered in
the next issue of “Ask SAM,” just email us at [email protected].
Manchester, Vermont // 3657 Main Street // (P.O. Box 416) // Manchester, VT 05254 // {Tel} 802.362.4410 // {Fax} 802.362.1377
Montecito, California // 1155 Coast Village Road // Montecito, CA 93108 // {Tel} 805.969.5670 // {Fax} 805.969.5680
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