Steve Jobs Leaves Apple

After the equity markets closed last night, Apple released the news that Steve Jobs has resigned- permanently, it appears- as Apple's CEO, but will be chairman of the board of directors. Tim Cook will assume Jobs' duties.

The major buzz on business/finance cable news and in the Wall Street Journal is the future of Apple and its equity price.

For example, in a development to which I alluded in today's prior post, Tyler Mathisen grilled a guest technology sector analyst by demanding that he forecast Apple's equity price two years hence. This, of course, is a perennially stupid question because equities always have some component of their price movement linked to equity index levels. To be a veteran financial network executive and/or anchor and not understand the uselessness of that question is, well, to be Tyler Mathisen.

But, back to Apple......

Apple has been in my equity strategy's monthly selections frequently for the past few years. Anyone holding the stock has had to expect that some day, any day, this event could occur, probably triggering a decline in the equity's price.

Between yesterday's close and this morning's open, Apple's share price declined 5%.

But to put that in perspective, here are the respective returns for Apple (post-Jobs departure decline) and the S&P500 in my strategy's portfolios since November:

Month             Apple           S&P500
Nov                 +14%            -4%
Dec                 +13%             -3.8%
Jan                  +7.5%            -7.5%
Feb                      0%             -10.9%
Mar                 +6.3%            -11.8%
May                 +3.5%           -11.8%

So if the 5% decline constitutes most of the damage to the stock, I don't think it's a big deal.

To me, there are three elements to assessing the effect of Jobs' departure as CEO on Apple and its equity price.

The first is actual product development and strategy. I believe those are probably set for the next 18-24 months, so the company's fundamental performance shouldn't suffer. Moreover, I would anticipate that as long as Jobs is alive and able, he will continue to be involved with these areas, with management's blessing.

The second element is investor perception of the impact of Jobs' departure as a full-time operating executive at the firm. In that regard, I believe that one should largely ignore this element, so long as the company's strategy and operations continue to provide strong fundamental performance, i.e., earnings growth.

In this regard, I recall holding Dell in 1998, when nearly every analyst publicly said the company couldn't sustain its torrid profitable growth. My portfolio held two of the S&P500's top ten total return equities for that year- Dell and Schwab. Both were negatively assessed throughout most of the year, only to defy predictions of their demise. In Dell's case, most analysts failed to see how much more capable Dell's management then was, compared to their peers, and how attractive their product/market segment was. The stock doubled that year.

My quantitative strategy's proprietary evaluation criteria determined Dell to be surprisingly within a normal range of performance on an attribute that most analysts viewed differently and, thus, incorrectly.

For Apple, now, I believe that its fundamentals are very similar to Dell's 13 years ago. It won't be for perhaps two more years that Apple's strategy and products suffer from Jobs' absence.

Finally, there will come a time, probably about 18-24 months after Jobs' ceases any active involvement, even if it were reduced to periodic dabbling in development and product strategy, when the company's performance begins to falter. That's when it will be time to be out of Apple.

But I suspect that time is still a few years off. In the meantime, it's very likely that consistently superior returns will be earned by owners of Apple equity. The cost of being a few months late to sell will almost certainly be offset by owning it until then.