Why Apple's Right to Sit on its Cash

The Apple share price seems never to go down. It did have a nasty lurch last month, when the price dipped to $153.76 on November 12 from its high of $191.79 on November 6 – that's a fall of almost 20% in just four trading days. But guess what – it's back over $191 again today. Clearly the company is doing something right.

But now Fortune's Jon Fortt is casting his eye on Apple's cash holdings of $15.4 billion, in a column which uses the words "buyback" and "dividend" five times each.

It seems obvious to me that the absolute worst possible time for a company to start buying back its own stock or paying dividends is when that stock is at an all-time high, has doubled in the past year, and is trading on a price-to-earnings ratio of about 50. I just don't see how giving shareholders a few cents in dividend payments is going to make any appreciable difference to a share price which is nudging $200. Meanwhile, having a large cash pile means that Apple, if and when it sees an attractive investment or acquisition opportunity, can strike very quickly. Not that there's any urgency.

"If the money just sits there, it smacks of waste," says Fortt. Not at all: if the money is spent trying to bolster the share price, when the share price seems to be doing a perfectly job of bolstering itself, that smacks of waste. When companies use their own cash to buy back shares at high levels, they nearly always regret it later.

Meanwhile, just check out the staircase at the new Apple Store on 14th Street. I wonder how many of those you could buy for $15 billion.