That's not a cell phone in my pocket. It's a paradigm shift.

One of the things I love to go on about is that Apple Computer is not a computer company. Steve Jobs knows this, which is why he changed the name back in January to Apple, Inc.

But analysts can't seem to shake the notion that a company that makes computers must be a computer company. And now that so much of the company's revenue comes from music, they're trying to think of it as an entertainment company. And now a cell phone company.

It's none of those.

Apple is a design company. Its area of specialization--which by no coincidence is also the thing that drives Steve Jobs more than anything else--is user interfaces. When you understand this, you understand the Macintosh computer. You understand the iPod. You understand iTunes. And you understand the iPhone.

More important, you understand that now would be a really stupid time to sell the stock.

What's that all about, Brian? Well, I'll tell you.

The iPhone is not a cell phone.

Okay, yes, it has cell phone functionality. But it's also a camera, a computer, a music player, and a video player. So what is it?

It's a portal. A portal to the information you access in order to run your life. The fact that it operates like a cell phone is crucial, of course, but it's way bigger than a cell phone. It's a paradigm shift.

Remember when the cell phone came out? People thought it was neat because it allowed them to make or receive phone calls form anywhere. What they didn't quite grasp was that phone numbers would no longer be tied to geography. Thanks to cell phones, a phone number now belongs to a person, not a place.

That's a paradigm shift, and one we haven't even fully digested yet. After all, cell phones still have what's called an 'area code', despite the fact that the concept is irrelevant, except in terms of creating an impression.

On June 29th, Apple gave us the first opportunity to see the next paradigm. One in which we move from 'mobile computing' to access to information without physical constraints.

Sure, a lot of the features that are touted in the iPhone were previously available. But what hasn't been appreciated is its ability to switch from cell service to WIFI. That, along with its Safari browser and its iPod interface, make it a device that will enable you to access all of your information from one single location. You.

Wherever you are, you can now access and run your entire digital life, not just continue operating and sync with your own personal mother ship back home or at the office.

If you buy that, then you understand why Jobs is not worried about the iPhone cannibalizing iPod sales. It's a different tool. What is is worried about--probably--is the iPhone cannibalizing laptop sales. If people use their laptops primarily for e-mail, web browsing, and entertainment, why would you lug around the monitor and keyboard?

Well, I'll tell you. Because pretty soon the Apple laptops will be able to make cell phone calls as well. For those who actually need computers to write, run data, or perform some other computer-specific task away from their desks. (You know those micro laptops the rumor mills keep promising will be coming from Apple? If those don't come with cell phone capabilities, I will be seriously disappointed that Steve Jobs isn't the visionary I know he is.)

In fact, what Steve Jobs has just opened the door to is a world where computing tasks are performed on dedicated computing machines, and where we don't have to carry around all that computer for our day-to-day functioning. In essence, we tap into the Borg.

Curiously, this is a lot like the world he derided Bill Gates for trying to create. And maybe one man's borg is better than another.

I think so.

I also think that there's no other company that's in a position to offer an alternative to Mr. Jobs' new paradigm, certainly not one that understands so beautifully how important it is to people to interact with their information, not their machines.

That having been said, I will not be running out to buy an iPhone. It doesn't add enough to the way I operate for me to justify spending the money.

But it is the future. It is inevitable. And it will be huge.

The fine line Apple has to walk.

Well, looks like I was right, more or less, about Apple. The iPod has given them the leverage to build their other businesses--computers and entertainment--and now they're poised to enter the phone business as well.

The perception is that Apple is going to redefine the phone business the way it is currently redefining the entertainment business, which means that the expectation is built into the stcok price. In other words, there's more room for Apple to fail than succeed.

So is it time to sell? No.

What Wall Street isn't figuring correctly is the computer portion of the business. Sure, everybody is surprised and amazed that Macintosh computers are selling so well. What most of them don't get is why.

It's not the halo effect from the iPod. People don't go, "Gee, what a nice music player. I think I'll buy one of their computers." If that were the case, Sony would be selling a ton more computers.

It's the fact that for the first time, people can buy the computer they have to have (a PC) and get the computer they want to have (a Mac). That's because the Mac is now running on an Intel chip, which makes it possible to run Windows on it.

And this is where Steve Jobs has to be extremely delicate.

So far, he's been really smart to resist introducing a new style of computer. If he had, analysts would credit the increase in Mac sales to an appealing design. This way, it should be clear that the user interface, combined with the elegant design, are what make the computer so desireable.

There's probably a lot of speculation that the next generation of Macs will come with Windows installed, and if that's the road Jobs wants to go down, I will be selling every share I own. Because at that point, developers will no longer see a need to develop software specifically for the Mac and the OS will no longer have a purpose. And that's what I mean by the fine line Apple has to walk.

In order to sell to people who have to have PCs, Apple has to be able to run Windows. But in order to sell to the people who are devout Mac fans, the OS has to be viable enough to encourage software development.

I like to think that Mr. Jobs has his pulse on the market every day, evaluating how to give just enough to the PC crowd without losing OS viability. And one very good way to do that is to make it absolutely clear that the OS is gaining ground.

That explains why Apple keeps making noise about how many people are adopting Safari, the Mac web browser. It's also why Apple is so determined to make deals with Google--having access to Google's technology distinguishes the Apple OS from Windows, adding to its value.

It'll be interesting to see what happens over the next six months. If Jobs plays it right, Apple will pull itself back to a 10-12% market share. I wouldn't be surprised if Apple has new computer designs ready to go into production should the increase in market share slow. And in fact, the delay of the OS might even be a tactical move, allowing the iPhone to come out to all the fanfare, with the introduction of the new OS delayed so that it can get its own fanfare when the timing is more propitious.

I'm holding onto Apple for now. At least until Steve Jobs gives another indication of where the company is heading at the WWDC in June.

What the heck is Microsoft up to?

When I wrote that last post, back in January, Apple stock was trading at $84.29. Since then, just as I figured but didn't exactly write, the stock price has dropped.

Here's why.

When Apple announced it was moving to a new chip architecture, all the people who were just about to buy a Mac pulled back. Who would want the old machine, right? So sales dropped. Big time. Then there was the lag between the time Apple announced the new machines and they delivered the new machines. Even if everyone who wanted to buy a Mac and wasn't afraid to commit to a new chip architecture before the inevitable bugs got worked out was able to buy one, there weren't enough machines to buy.

Predictably, Wall Street gleefully wrung its hands, gloating over the demise of Apple. Again.

Here's what Wall Street doesn't get but Apple does: In spite of the fact that every analyst out there is confident that the iPod phenomenon has run its course, their kids still want them. And when their kids graduate high school, every one of them is going to feel entitled to a graduation gift. Some will get cars; others will get iPods.

But here's the beautiful part. Kids need computers for college. No, they don't need Apple computers. In fact, Apple dropped the education ball years ago, otherwise there would be more analysts on Wall Street using Macs. But kids want Apple computers. NOt because of how they perform, but because they look cool. Kids need to impress. They can do that with very few things--cars, shoes, clothes, music, and laptops among them. Now that Macs can run Windows, kids can make a case to their parents for the computer that's more likely to get them laid.

Only problem is, it's more expensive than, say, a Dell.

Ooh. I know. What if every new Apple computer came with an iPod? Junior can have his college computer and his graduation gift all in one, for just about the same amount as a Dell computer and an iPod.

Apple just released it's quarterly sales figures and, wouldn't you know it, they're up by 48%.

Dell, by the way, is heading straight for the toilet. In fact, the entire computer industry is off and yet, somehow, Apple keeps doing better. Because, and if you work as a Wall Street analyst, you might want to read the next bit really slowly so you get it, no other computer maker can bundle an iPod with a computer.

Sure, some of them can offer MP3 players. But they don't have iTunes. iTunes is a critical component of the iPod experience and oh, by the way, a massive profit center for Apple.

Which brings me to Microsoft. Microsoft gets this. And they're putting themselves in a position to do an end-run around Apple.

When Microsoft introduces its version of the iPod, it's going to simultaneously introduce its version of iTunes. It'll sell its iPod thing to consumers, sure. But more importantly, it's going to either co-brand with PC makers or (more likely) strike deals with PC makers to bundle it with their computers. Microsoft has the muscle to do this because, after all, the PC makers have to sell their machines with Windows installed.

So here's my prediction: Microsoft will come late to the party, as usual, and bully its way up to the punch bowl. Look for its stock to surge, oh, six months after it actually delivers product because typical for Microsoft, the first version will be late and buggy. As for Apple, by then they ought to be onto the next phase of their revolution. If we don't have an Apple cell phone by then, as well as a universal remote that truly works with entertainment systems in the home, then I have more faith in them than they have in themselves.

Long term, Microsoft is on its way back; Apple is still moving forward.

Look for Apple stock to continue its decline until it reports its next quarter earnings, at which point it will surprise the analysts--again--who still think Apple is a PC company.

I'm holding onto my Apple stock. I'd buy Microsoft stock (I have some in another portfolio, but that's not relevant here), but I don't have the money right now.

I know, so what makes me think I know what I'm talking about?

Let's just say that in another portfolio--the one with the Microsoft stock--I pulled a 40% profit in two weeks with an option play on Apple, based on exactly what I just talked about.

Apple’s Grand Strategy.

I feel so smart. I’ve figured out what Apple is up to.

First, a little background. Apple just introduced new Macintosh computers running on Intel chips. This isn’t new news, really, because Apple made the announcement six months ago.

And six months ago, it occurred to me that an Apple computer on an Intel chip would be able to run Windows as well as the Mac OS, which would make it a really appealing box for high-end users—the people Dell have decided to target with their upscale PC.

Brilliant. But not all.

You see, Apple isn’t making a big deal about the ability to run Windows on the new Intel-based Macs. And at first blush, that seems counterintuitive. But now I get it.

Sure, the new Macs can run Windows. But that’s not the future. If you want to see the future, look at the Mac OS. Particularly the Widgets.

For those of you who don’t know what Widgets are, they’re mini programs that run on the desktop, each one dedicated to a single discrete task. That task is associated with the internet.

And that’s where the genius is.

Right now, Widgets are mostly gimmicks. You can tell the weather in St. Louis without opening your browser. Whoopee.

Only yeah, whoopee.

In the current structure, your operating system is the interface between you and your programs. One of those programs is your browser, which serves as an interface to the internet. And when you start your browswer, you go to a portal, which compresses all the vast stuff in the internet into a place for you to start accessing it.

An interface that takes you to an interface that takes you to an interface.

Until Widgets.

A Widget is pre-browser. In other words, it functions as the interface between you and the internet directly, without having to go through the browser.

In one move, Apple has been able to eviscerate both the browser and the portal. At least in theory.

But here’s where it gets stunningly visionary: If the Widgets will run on an Intel-based machine, is there any reason they can’t run on a PC?

Suddenly, Apple doesn’t need to replace the Windows OS. All it needs to do is supplement it. It’s not a threat if it’s added functionality, after all. Only it is. Because the internet is where the revenue is going to come from. If Apple can port the Widget structure to PCs, Apple will become not only the arbiter of what’s worthy on the internet, but also the company with access to all those eyeballs.

An Intel-powered Mac makes that not only possible, but inevitable.

The future of the Widget, then, is that it becomes the interface between you and both what’s on the computer and what’s on the internet, with no real distinction drawn—at least as far as the user is concerned. Furthermore, the Widget as a concept is small enough, discrete enough, and conceptually simple enough to be applied far beyond computers. Adding a Widget to a cell phone makes a lot more sense than adding a browser. In fact, it finally makes sense to conceive of that connectivity the prognosticators have been talking about for years.

It used to seem silly to think of connecting your fridge to the internet, because you’re throwing an inordinate amount of horsepower at something so totally singular. But the Widget architecture makes that make sense. Now you don’t need an entire browser to see if you need to grab more milk on the way home from the office. All you need is a single, simple Widget.

And it goes the other way as well. It never made sense that people would browse the internet from the fridge. But a wee Widget you can add to the fridge would make it make sense to find the store that sells your favorite brand of milk at the lowest price when you’re running low.

Am I right about this? Imagine a clock/radio that downloads the number 1 hip-hop song to wake you up with each morning (iTunes). Or a storytelling machine that puts your kid to sleep each night with a story told by their favorite cartoon character (Pixar, Disney). I believe Mr. Jobs figured this all out a long time ago. And I believe I've finally figured out just how smart Mr. Jobs is.

I wish I’d thought of this a week ago. Apple stock has gone up 12% in the past week.

That’s okay. As soon as Sony or somebody comes out with an MP3 player that looks half decent, everybody will dump their Apple stock because the run must inevitably be over. That's when it goes on sale. And that's when I’m backing up the truck.

I just got back from Turkey and you know what I learned?

I learned how incredibly weak the US dollar is.

Turkey is supposed to be this amazing bargain. Well it's not. We had lunch under a bridge for $60. The cheapest hotel was $65 a night. The prices in the guidebooks we'd bought (brand new, just before we left) were off by almost exactly 100%.

The thing is, there were other tourists. Mostly from Germany, Holland, England, and various Islamic countries. And even though we never had a hard time finding hotel rooms or getting into a restaurant to eat, it's not as if nobody was spending. We stayed in one area that was mobbed with people--mostly Turkish--many of whom carried shopping bags and seemed to have to problem springing for a $7 latte at Starbucks. (Yes, they have Starbucks in Turkey. We'll get to them some other time.)

So while Americans might look at Turkey as expensive, there's an obvious inverse: To people in Turkey, America has become a bargain. I met one Turkish guy who was blown away that he could spend an entire weekend in Las Vegas for a paltry $300.

Of course, a bargain is only a bargain if it's on something that you want. So how do the Turks feel about America?

Maybe it's just me, but I didn't pick up on any anti-American sentiment.

Okay, that's not quite true. One hotel owner clearly didn't like us--probably because we were from the States. And I had an interesting discussion with a bartender who told me why Turkey has a better human rights record than the US. But disregarding those two experiences, we felt completely welcome. Everybody seemed to know somebody in the States. And many people were saving up to visit or move there.

I know what you're thinking. You're thinking, okay, so what does this have to do with investing?

Well, I'll tell you.

Harley-Davidson.

I already like Harley-Davidson from an investing point of view because of its business model: They have an incredibly strong brand which is bought by people who like to think of themselves as outsiders, the product is priced at a premium, and (this is the huge bonus) every time they sell a motorcycle, they can expect to sell a massive amount of accessories to go along with it.

If this sounds familiar, it's because this is exactly the business model that Apple Computer uses. But there's a difference.

The difference is that Harley is in a position to take advantage of two economic factors that are generally perceived as negative: 1) that gas prices continue to rise and 2) that American Baby Boomers are facing impending retirement without the resources to do so the way they'd hoped.

The gas prices advantage is obvious. The Baby Boomer thing deserves a little explanation.

Let's say you're 60. You want to retire. But the economy sucks and in spite of Alan Greenspan's misguided belief that there hasn't been inflation in 20 years, you know that you're paying five times as much for everything that you used to, from movie tickets to bananas. You're not likely to move into that estate on the golf course after all.

How do you feel about that? I'm going to guess pretty ripped off. You've worked really hard and you thought you had this coming. Retirement is like vacation. You get to be free. Finally.

Well, if you can't have the house on the golf course, how can you afford the freedom you deserve after 40 years in the machine? You can buy a motorcycle. And not just any motorcycle, but one that labels you as a rebel. A free-thinker. Someone who flaunts authority.

This, of course, is why I first bought Harley stock six months ago. But now that I understand the incredible weakness of the dollar, I see that while Harleys are expensive to you and me, to people in Turkey they're increasingly affordable.

Which brings me back around to the brand positioning. Talk about perfect. A purely American product that is anti-establishment in its very heritage. In other words, whether you like the US or not, buying a Harley is an unassailable proposision. If you love America, how can you not love Harley? And if you harbor anti-American sentiments, you can buy Harley as an act of protest.

All Harley has to do is articulate this position. And having seen what they've done with their advertising for the past 15 years or so, I have no doubt that they will.

Today, I bought 283 shares of HDI at $52.8668 per share.

Like we didn't know.

I read an article in Forbes online today that says that PC owners who have an iPod are more likely to buy a Mac than PC owners who don't.

Which seems pretty fundamental to me, but since Forbes thought it was news enough to turn into an article, let me take you through the logic of what Apple is up to.

First, the Macintosh operating system is superior to Windows. Oh, stop whining all you hardcore PC people. It is. It's easier, more efficient (unless you like writing code), and prettier. People who say PCs are every bit as good as Macs are the same people who say a Ford is every bit as good as a Mercedes. Yes, both machines will operate to the limits that are imposed by either the operator or the law, but in both cases one simply feels better.

The problem is, most PC people have no clue how much nicer it feels to work on a Mac. Their offices are dominated by PCs and besides, everybody knows that Macs are more expensive. So why even bother going into the showroom?

Here's an idea. What if there were another way to get people into the showroom? Say, a hot little music gizmo that we promise promise promise will work with your PC?

Sure, millions of people buy their iPods in other places. But millions of people also buy them in an Apple Store or the Apple site. And they also go to there for accessories. And to browse at whatever the new iPod gadget/style/color/accessory might be.

"Hmmm," they say. "Those snappy Macs sure are pretty. But everybody knows they're expensive. And besides, I already have a computer, complete wtih keyboard, monitor, and software."

So Apple introduces the mini Mac. For $500, you get a Mac that works with your keyboard, mouse, and monitor. It comes loaded with all those snazzy Apple programs. And you can always plug in your other CPU for the stuff you're already doing.

$500 is not a lot of money for a computer. But to a lot of people, it's still a luxury, not a necessity. Hard to justify dropping that kind of coin on a new machine when there's a perfectly functional PC in the house.

So Apple switches to the Intel chip. What that means is that a mini Mac will run both the Mac OS and Windows. No PC can do that because Apple won't license the operating system. In other words, when you buy a Mac, you get a Mac without compromise. No cobbled together machine that runs an operating system but looks like dog doo doo.

The only issue is timing. Apple couldn't switch to Intel until some sort of security could be built into the chip that would prevent unauthorized versions of the OS from running on non-Mac machines. Apparently, that day has come. it should have come three years ago, so that Apple could unveil an Intel mini Mac before this Christmas. Or at the latest, next Christmas.

But then, maybe they're way ahead of us on that. So far, they're pretty damn smart. I'm heavily invested in Apple already, but I'm going to buy more. As soon as I get back from Turkey.

Pick #1: Nike

I was in Chicago the other day and I had a little time to kill so I pulled into the Nike Store to look around.

You know what they have?

They have sneakers you can customize yourself.

You can choose different colors for everything from the base to the tongue to the laces. I want a pair. I want three pairs. And I'm old.

The reason I was in Chicago was to do a documentary project on people and computers. We interviewed people in a bunch of demographic groups--including teen boys and teen girls. Why is this relevant? Because a message that came through loud and clear was that teen boys in particular, but also teen girls to a large degree, project their identity through two things: music and shoes.

Do you see where I'm heading with this?

These customizable sneakers (and other stuff as well--go to http://www.nikeid.nike.com/ and you'll see what I'm talking about) are going to be to Nike what the iPod is/was to Apple (we'll get to Apple later). Only moreso. Because whereas other companies can and do build MP3 players, no other athletic company has the infrastructure to compete with Nike in this arena.

I know what you're thinking. You're thinking, "Brian, I thought you said you were going to make your decisions based on marketing, not on stuff like infrastructure." You're right. I am.

Here's why this is a marketing call:

I keep telling this to my clients, but they never seem to hear it: The most visible form of advertising that a most companies can invest in is the product itself. Sure, Nike can spend $200 million on television commercials. But Joey Eightgrader is going to see more Nikes in person than he ever will on TV. A relatively expensive customizable shoe is a more compelling ad for itself than any television commercial will be.

Okay, not quite true. Advertising can be insanely powerful. But the sad truth is that most advertising is not. Some of it is actually harmful (we'll get to Cold Stone Creamery later). The point is that I believe that Nike understands this in a way that most of the clients I work with don't. Nike treats its products as a valuable component of its marketing communication--that's why they spend so much on design.

What Nikeid.com represents is a single idea that can effectively transform the perception of a massive company: The tightrope Nike has been walking for years (successfully, I might add) is maintaining a balance between its massive popularity and the desire of its customers to be individual.

Customization implies individuality, essentially negating the negative effects of being too popular. In other words, you can have what everybody else has without being a member of a herd.

These shoes just came out, which means that most people on Wall Street have at best a vague notion that they even exist. But when they start to notice that Joey and Suzy keep spending their allowance at the Nike Store, they're going to begin to believe that the company is onto something.

They'll lose all perspective when Nike announces its third quarter of better-than-expected sales for Nikeid products, and they'll speculate the stock up to a point where the price/earnings ratio is totally stupid (we'll get to Google later). Then Nike will have an off quarter and boom! The stock price will collapse to below where it is now.

Like I said before, it's all about perception.

On June 27, 2005, I bought 168 shares of Nike at $85.50 a share.