In the past 10 years, Apple has been a great investment. The success of their mp3, cell phone, and the rejuvenation of their computer business has been remarkable. If you look at the record of technology companies over the same 10 years, it’s been quite tough. With a few exceptions (Apple included), technology stocks have been poor performers.
Most of the credit can go to Apple’s CEO, Steve Jobs. My first experience with his products came at school. When I was in college, Jobs started a company called NeXT. At the computer lab at school, I saw a demo of his new computers. They crashed, but once they got them going they had impressive features that current PCs didn’t have. It was some of this technology that Jobs brought with him to his second stint at Apple that eventually made it to the current Apple computers.
The question is would it have been possible to find Apple and invest in it before this rejuvenation happened? And if so, what criteria could you have used?
According to Joe Ponzio, a value investor, Apple would not have been a good investment based upon its cash flow at the time prior to the launch of its first real blockbuster product, the iPod. So, if you asked ‘Would Warren Buffet Buy This Stock?”, the answer is likely no because the financials don’t look good.
If you don’t want to consider the financials, then another reason to invest would be to have some knowledge of the future products or other technical information that would lead you to conclude that there is a lot of unrealized potential. There is no other insider more knowledgable than Steve Jobs himself.
So, what did Steve Jobs do? In this article written during the previous bull market that existed in 2007, he traded in some options that were under water for a fewer number of shares that he took possession of. These shares currently had value while the options did not, so at the time this looked like a good decision.
As the article pointed out, that decision cost him over $4 billion. I have no doubt that Jobs believes in his products and is passionate about Apple. But, if Jobs really thought that his company was undervalued and had lots of growth left why would he trade in his options? If the ultimate insider didn’t see the bull run that occurred with Apple, how could anyone else have expected to see it?
Only by chance.