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Of course you're right, Ravi.

I realize it's not quite realistic to subtract 100% of the cash hoard, but it's a lot more realistic than ignoring it completely, as most people do.

If I only count, say, $100 of AAPL's roughly $140 per share, it might raise my estimate of current P/E all the way to 8.

Beyond the tax repatriation issue (which must be accounted for), there is also the issue about how well that retained cash will be used. As Buffett has pointed out, this issue regarding how well retained earnings are managed is of utmost importance in valuing a business.

With Apple, I'm not sure what I think. I think they're doing great things with a (relatively small) portion of the cash...that which is being spent on expanding the business. But then the vast majority of it is sitting in fixed income investments earning less than 1% annually. While these investments seem "safe", they are actually losing purchasing power via inflation. It is like sand slowly falling through the fingers of your hands.

And it's not at all clear from Apple management that they care a whole lot about using this cash in a way that maximizes shareholder value. They don't talk about it much, and they're doing nothing with it.

So what I'm starting to do is not to subtract it out when thinking about Apple's value, but rather having it count as part of the margin-of-safety. I figure if I'm happy with the price of Apple without that cash hoard, then I should be really happy with it. Nevertheless, if they don't start making better use of the continually-growing cash hoard soon, then it will become a negative. To those who doubt that, do a thought experiment: what is the intrinsic value of a business which perpetually retains all earnings, and allocates the bulk of those earnings forever to investments earning less than the rate of inflation?
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