Thursday, October 06, 2011

Apple In The Wake of Steve Jobs' Death

It's tough getting real business news this morning, as the major cable business channels, CNBC and Bloomberg, are devoting so much time to eulogizing Steve Jobs.

Over on CNBC, his royal pompousness, Jim Cramer, actually self-referenced his capacity for being pompous and windbaggish.

Yes, it's sad that Jobs is dead. Yes, he was the Thomas Edison of our era.

No, despite the claim of one Bloomberg guest, Jobs was not our era's Thomas Jefferson nor Ben Franklin. To my knowledge, Jobs carefully eschewed both public office and/or ambassadorships.

Yes, Leo Hindry- why this guy keeps popping up everywhere after destroying his last venture, Global Crossing- was correct to declare that there have been at most four other business inventors of Jobs' calliber in the past few decades, including Watson, Sr., David Packard and Bill Hewlett. No, Hindry said, Mark Zuckerberg is not the next Steve Jobs.

That said, let the dead bury the dead.

The remaining question, which I addressed in this frequently-read post from last December, is how to approach Apple as an investment. Here's what I wrote,

"One, of course, is the firm's clear, successful focus on consistent innovation and evolution of well-received products. Those products have achieved high brand preference status. Additionally, they are typically in price ranges that have made them less vulnerable during the recent US recession and continuing economic weakness. With Steve Jobs' continued leadership, the firm may outperform expectations for a little while longer still.

And, finally, there's something which many investors fail to grasp. That is, even broadly-followed, popular firms can outperform. What is required is unexpected excellent performance. Firms like Microsoft, Dell, Kolhs, in the past, and, currently, Apple, have achieved this. It can never last forever, but it can often outlast ill-informed, generically-based expectations.

What Google does seems to be less unique with time, while Microsoft has been mismanaged for over a decade, with no sign of significant change in that important parameter.

The bottom line for me is that I don't subjectively select equities. But I can and often do interpret why my quantitative approach selects those equities which appear in portfolios. And from post hoc, informal inspection, it's easy for me to see why none of the recent portfolios have held Google or Microsoft, while many have included Apple."
And, soon after, this post concerning his first medical leave,

"Of the three developments, I'd say that Jobs' departure will be the most critical. As expected, it knocked some value off of the equity's price this morning, causing a 3.7% drop by 11AM, as I write this post. As a growth equity, it's understandable that uncertainties over Jobs' future at the company will affect the forward-looking component of its price. So even strong quarterly performance reports will probably be overshadowed by these worries.

I remain comfortable trusting the management that brought Apple to its path of consistently superior performance. If Steve Jobs becomes unavailable in the long term, that will probably affect the company's share price and, thus, it's implied performance for shareholders. It's a self-fulfilling prophecy that could very well remove Apple from my equity selection process' results. So be it."

With Jobs' death, many will question how long they should continue to buy/hold Apple. As I wrote in the above passages, I use quantitative methods. So as long as Apple continues to meet my performance criteria, my portfolios will include the equity.
Many pundits have argued, in the hours since Jobs' death was announced, that Apple's culture and team approach to management is so strong that it will outlive Jobs.
That's doubtful. Maybe for a few months, a year. But with Jobs dead, the remaining Apple executives will eventually evolve to a new team dynamic, since Jobs will not be coming back anymore to get them all back in line.
People have personal goals, individual objectives, visions, etc. And without Jobs' unifying vision, Apple will, must, in time, become different.
But for me, the proof is in the performance. It's as simple as that.
Even with Jobs, it's quite likely that Apple would eventually have fallen victim at least to investors' expectations finally catching up with the firm's fundamental performance. Without him, there's the potential for that, as well as competitive pressure that no longer has Jobs' instincts to counter it.
And the possibility of federal regulatory action which they wouldn't have dared initiate against America's favorite innovator while he lived.
But, dead, his company is fair game.
So, to reiterate, sad though we all are that Steve Jobs died yesterday, decisions regarding owning shares in the company he co-founded should not depend upon that event. They should depend upon the firm's performance going forward.

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