The chart tells all.
From over $700 to $450: this is a disaster. Simple: regression to the mean (RTTM).
The poor saps on Wall Street never saw it coming. The funds loaded up. Here was a sure thing. It could not lose. Here is a recent article on what happened: How Apple Ate Wall Street.
“Just how popular has Apple become? It was among the top 10 holdings in more than 1,000 mutual funds last year, according to fund researcher Morningstar Inc. — up from just 11 in 2002, shortly after Apple introduced the device that started the gadget craze, the iPod. Overall, about one in four stock funds owns Apple.”
Here is what I wrote on October 11, 2011.
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We all know about the apple that Isaac Newton supposedly saw fall to the earth, thereby causing him to come up with the mathematics of gravitation — the most important and unbreakable law governing physical objects, and still unexplained. (Why should masses attract each other at a distance in a vacuum?)
What goes up eventually falls . . . unless is disappears into outer space and becomes statistically irrelevant. Gravity overcomes the inertia of upward movement. What goes up always falls.
Apple’s relentless descent to earth is inevitable. I can prove it in 15 words.
Here are the first four: regression to the mean. There is no way around this. This is the law of social gravity.
What kept this from happening earlier was the fact that Steve Jobs was a creative genius, like few other men in history. He also had this advantage: he was called back to save the company when it’s share price was $5. Without both roles — genius and savior — Apple would barely be visible. It might have gone bankrupt.
The person who replaces him will be a corporation man. He will not be a creative genius. He will also be someone who came up from the ranks as a Steve Jobs’ flunky.
Here is Apple’s plight: everyone in the outfit is Steve Jobs’ flunky, and everyone else knows it. Everyone bent low whenever Jobs entered the room. This position was not always in the form of a bow.
Steve Jobs was a mean-spirited, foul-mouthed, intolerant man. He told people publicly their work was “crap.” He humiliated subordinates. That was his style. He was a personal SOB. He is beloved in death only because he turned out to be right in the marketplace, over and over, but only in the post-1996 period. Before that, the technology was not there to let him implement his vision.
Nobody who is that inconsiderate, that much of a personal jerk, can get the cooperation of highly skilled people unless he makes them a lot of money.
There is no one to follow him. There will never be another Steve Jobs at Apple.
Apple now faces the Bao Dai phenomenon.
You probably have never heard of Bao Dai. Wiki tells us who he was.
Bao Ðai (lit. “keeper of greatness”, 22 October 1913 — 30 July 1997) was the 13th and last ruler of the Nguyen dynasty. From 1926 to 1945, he was king (or emperor) of Annam under French ‘protection’. During this period, Annam was a protectorate within French Indochina, covering the central two-thirds of the present-day Vietnam. Bao Ðai ascended the throne in 1932 at the age of 19. The Japanese ousted the French in March 1945 and then ruled through Bao Ðai. At this time, Bao Ðai renamed his country “Vietnam”. He abdicated in August 1945 when Japan surrendered. He was the chief of state of the State of Vietnam (South Vietnam) from 1949 until 1955. Bao Ðai was criticized as being closely associated with France and spending much of his time outside of Vietnam. Prime Minister Ngô Ðình Diem ousted him in a referendum held in 1955. . . .The referendum was widely regarded as fraudulent, showing an alleged ninety-eight percent in favor of a republic. Bao Dai abdicated once again and remained in exile for the remainder of his life in Paris, France.
With the emperor gone, no leader had legitimacy. Every leader faced resistance from the other pretenders. “I’m as good as you are. Better, even.” This led to the inevitable escalation.
Over the next 20 years, the leaders fought it out, with the USSR and the USA using its side as a surrogate.
The man who replaces Jobs will be neither as smart nor as ruthless as Jobs was. He will not be able to order around his peers. He will be met by these five words: Who are you to say? Jobs faced these five words in 1985. He was fired.
It took a ramrodding visionary to extract creativity out of the employees. He saw what people would buy. The flunkies merely executed his vision, and only because he was there at every step to tell them how to do this.
No one will ever command allegiance at Apple the way Jobs did, 1997-2011. Without this allegiance, Apple will become another Microsoft. It will not go bankrupt. It will still be a player. But it will lose its dominance. It will move from an order-generating organization to an order-taking organization. Its profits — its uncertainty-based return on entrepreneurship — will shrink. The firm will take orders from customers, because its best senior employers will not take orders from the CEO. They will depart to form their own organizations. They will imitate the founders of Intel, who left Fairchild.
“I’m as good as you are. Better, even.”
One by one, they will either prove it or not. They will leave to prove it.
Meanwhile, open source coding will eat away at Apple, just as it will eat away at Microsoft. Open source coding will let geniuses all over the world enter the market and offer better solutions.
F. A. Hayek’s 1945 essay, “The Use of Knowledge in Society,” shows us what will happen. The profit motive in an international, decentralized free market will call forth creative alternatives to the centralized, closed-system, proprietary architecture at Apple. Open source software will take bite after bite out of Apple. It’s inevitable.
“Regression to the mean.” “Who are you to say?” These nine words will bring Apple down to earth.
(For the rest of my article, click the link.)
Apple also developed a "chic" factor with the same crowd who cared about what other people saw them driving, wearing, etc. Their products are high quality, at least for now, but there are other products with equal quality without the Apple name or price. I remember back in the 70s and 80s when Sony had the same appeal. Folks paid a premium for Sony's quality, then for Sony's name, then to simply get hosed for the same mediocre product everybody else was selling. The same thing will happen to Apple as well. Just a matter of time.
Microsoft has had the same problem for about 13 years since Gates basically left to spend billions from his foundation on population control, eliminating future customers. Its stock has remained stagnant, despite inflation; which means it has gone down in real terms. The tech leaders now will be Bezos, the Google guys, Zuckerberg and whoever runs Samsung, which by the way is opening big offices in Silicon Valley.
re: "open source coding will eat away at Apple" GN
Stick to Austrian Economics Gary. Apple is arguably the leader in open source implementation. Read here: http://www.apple.com/opensource/
Apple is building on a foundation of open source and constantly incorporating open source.
If you want an insight into Apple and its roller coaster stock ride from a technical writer read the following:
Gary, I have followed your writing for a long time and have enjoyed the bulk of it but I suspect you are basically a cheap skate and have seldom used an Apple product let alone bought one. If I am correct about you, why not buy ONE Apple product and use it for a month and then write and article comparing the Apple product to an "equivalent" Dell one.
Apple products are manufactured in the same Chinese slave-labor factories as the rest of the brands. The product is a quality one, above average but in no way spectacular. I would add to also ask Gary to report to Apple a defective product after they have his money, and see how he likes the treatment he receives. Walk in to an Apple store to buy something, and the salespeople are on you like white on rice. Let them know you're having trouble and they'll refer you to something they call "The genius bar" where you'll have to make an appointment and come back later.
As my moniker implies, I AM one of those guys who has been around not ONLY the ‘block”, but the whole city, as it were! I therefore am hard to impress by anybody. I tell Microsoft exactly what I think, I tell Apple what I think about their products! Mr. Kurt. I have iPhones, and don’t like them! The quality is there, but as an honest IT guy who’s been here since you could buy the same parts that Gates, Jobs, and Woz bought to “invent” their original computers at Radio Shack, I like Android/Samsung S III better! Both have good and bad!
This, however, does nothing to what’s being discussed in this article. That Apple almost went out of business back in the 90’s there’s no disput. In fact I’ve always said that Gates screwed up when he bailed them out! Had he let his buddy go under, well I often wonder what things would be like right now! For instance the iPod to ME was/is just one of many mp3 players, and there were several that were arguably better! Creative always had killer sounding units, but what Jobs did was to “invent” a way to sell the music as well as the units to play it on! Everybody else were relying on you buying CD’s and converting those to MP3’s and loading the player.
So in this respect is this article exactly right! Jobs cannot be replaced easily! As I’m writing this comment, I just saw a news report on Apple dropping prices! They do not have anyone that is angry enough to keep Apple as highly regarded as it is! Gates needs to make the move to buy Apple, instead of Dell! He then would be able to dominate computing from both ends! Anybody else realize this?
I've used Macintosh computers for nearly 25 years now.
But I doubt I'll bother in the future.
Apple's forcing everyone from its traditional software interface into "iOS" the mobile software interface, but I don't ever plan to use an iPhone or iPad, both of which are much less powerful than any laptop.
Don't get me wrong, I love tablets, though only as consumption devices (none are useful enough for real work).
But Amazon's always been cheaper and more flexible than Apple, so I went with a cheap Kindle Fire for books and fun apps.
Reading this about Apple has me wondering. Why was Al Gore the “Green Prophet” (really?) Who has many houses, a jet, and big cars-who sold his TV station to Al Jazzera (They have the same philosophy as he,now that is worrisome) buying over 6,000 share of Apple at $6.00+