Ryan Leggio: Talking about high-quality companies, some would put in that camp the Apples of the world, maybe some others. I know you have very distinctive views on competitive advantage. Can you talk a little bit about some...
Bruce Greenwald: Forget views on competitive advantage. If you pay a buck for something that's worth 50 cents, you are losing money right away. The easiest way to do that is to get caught up in the enthusiasm of the moment. The tech bubble in '99, Japan in '89, financials and housing just more recently in 2007. And today, Apple is trading at 50 times earnings and--I don't even know--it may be even more. And though, first, it's going to take a lot of earnings growth to pay that off.
And all the historical evidence says it's a bad mistake to buy those kinds of stocks. Apple may be an exception, but if you think about its vulnerability to competition, it doesn't have the kind of customer captivity that Microsoft has. People buy new cell phones all the time. People buy new computers all the time. People buy new iPods all the time. And they look around when they do that; they want the latest hot thing. And Steve Jobs has been very good at that, but I wouldn't bet on that for the indefinite future.
Not only that, they don't have scale in that market. I mean, Microsoft dominates operating systems. Anybody who wants to compete with them is going to have to spend $3 billion, and lots of luck getting the customers to justify it. People can go after Apple, one piece at a time, with much more available market, and the fixed costs relative to the size of the market are much smaller. So, the ability of Apple to keep people out of that market is, I think, much less than these other franchise businesses, and it is hugely expensive.