If I Bought Apple Stock In 2001: An Opportunity Cost Lesson

If I had bought Apple stock in 2001, our net worth would be much greater because I usually buy and hold. The split-adjusted share price was $0.43 in early July 2021, while it is nearly $227 today. The math is straightforward; even $1,000 invested would be worth over $626k now.

However, I did not. Instead, I bought an Apple computer. I needed a laptop, and it served me well and lasted approximately 10 years. This was an error of omission.

Two Types of Errors

There are two types of errors as a small investor when investing in stocks. The first are errors of commission. These are straightforward to understand. You made a decision, and then something went wrong with your investment. You committed the mistake. 

There are also errors of omission. You elected not to invest in a stock that does exceptionally well. This is more along the lines of opportunity costs. Many stocks fall into this category, similar to not buying Apple stock in 2001.

That said, most, if not all, investors make errors of omission. It is an inevitable part of being a small investor.

Buy an Apple Laptop or Apple Stock?

I bought my first Apple laptop about 23 years ago. There were some exciting characteristics of the computer. It was a Powerbook Titanium G4. The laptop weighs a ‘ton,’ at least according to today’s standards. The chipset was from Motorola, whose chip division later became Freescale. Freescale was acquired by NXP Semiconductors N.V. (NXPI) in 2015. 

I liked the computer since it had a nice design and was just easy to use. I cannot remember the exact price of the laptop with the peripherals and other items I bought, and I do not have the receipt, but it was somewhere between $2,500 and $3,000.

At nearly the same time, I started buying stocks and thought hard about buying Apple stock. I did not, and obviously, my net worth is less. It is hard to say how much less since I used that money to buy other stocks. I did not buy Apple stock since the computer world was dominated by Microsoft (MSFT) and Intel (INTC). Most desktop and laptop computers were based on chips from Intel and the Windows operating system. Apple was an afterthought for many people, including investors.

You must think back to that time and remember that Alphabet (GOOG) had not yet had its IPO, and Amazon (AMZN) was a blip with a net loss in 2001. In addition, it was not clear if the return of Steve Jobs would lead to Apple’s success. Indeed, many other tech companies were doing much better at the time despite the dot-com bust. Share prices were down, but many of these companies were still profitable. You would have needed a leap of faith to buy Apple stock at that time despite what is seemingly a no-brainer in hindsight today.

If I Bought Apple Stock in 2001, How Much Would I Have?

How much would I have if I had bought $10,000 of Apple stock in mid-2001? I did not really have $10,000 to invest in Apple at the time. I had maybe about a few thousand to invest. But for argument’s sake and to simplify the math, let’s look at $10,000. We assume that I bought the shares at mid-year on the first trading day in July 2001 and that the dividends were reinvested. Apple started to pay a dividend again in 2012 after last paying a dividend in 1995.

By market close this past Friday, I would have owned more than 27,571 split-adjusted shares trading at $226.96 per share. My total return would be a mind-boggling 62,476%, and the average annual total return is 31.72%. As a result, my initial $10,000 has become $6,255,245. Not bad, to say the least.

The total return shattered that of the S&P 500 Index. Using the SPY exchange-traded fund (ETF) as a proxy, it gained only 627% in the same period, with an average annual return of 8.86%. The same $10,000 invested in SPY is now worth $72,712. This is a solid return but pales in comparison to Apple.

What is My Annual Dividend?

Apple currently pays a forward dividend of $1.00 per share annually. If I owned 27,571 shares, then my annual dividend is $27,751. This is obviously great since the annual dividend is now at least 2.7 times my initial investment. 

Apple has an extremely safe dividend where both the earnings and free cash flow cover the dividend. The forward payout ratio is under 15%. Furthermore, Apple has a net cash position on its balance sheet and generates one hundred billion dollars of free cash flow annually.

Final Thoughts on If I Bought Apple Stock In 2001

Obviously, it is unlikely that Apple will generate the kind of returns it did over the past 23 years. Apple will probably continue to be a successful company on the strength of the iPhone, its laptops, iPads, Apple Pay, iTunes, AI, services, etc. That said, I doubt that we will see an over 62,000% total return in the coming 23 years. 

However, that does not mean Apple is not a good investment today at the right price. Apple has solid dividend safety and is a dividend growth stock with an 11-year streak of increases, making it a Dividend Contender. Its core product, the iPhone, has staying power and produces a moat. Services offerings continue to grow and provide a recurring revenue stream. However, Apple is not particularly undervalued right now, trading at roughly 30X consensus earnings.

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