3 Investing Lessons from Steve Jobs
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Steve Jobs was one of a kind: a very particular combination of artist, visionary and business man. He also had other, more polemic, traits like a very unusual – sometimes really unkind - personality. Whatever your views are about such an exceptional person, there are some important lessons to learn and apply to our investment decisions.
Design and aesthetics matter, sometimes very much
Most people like focusing on measurable and objective data when it comes to investing, which is, generally speaking, a healthy mindset. After all, we don't want to buy stocks based solely on the subjective opinions of analysts or the media, and a good dose of hard data can be very helpful for improving our own analysis.
But some things can't be measured, and that doesn't mean they aren't important. Apple (NASDAQ: AAPL) has always distinguished itself by the superior design of its products, and this has been an important competitive advantage, which helped build the value of the brand and differente the company from competitors.
I believe the iPhone 5 will be a tremendous success, in spite of the fact that other products like the Samsung Galaxy S III are superior when it comes to some technological aspects, precisely because it’s more beautiful, thinner and lighter.
Many observers have been scratching their heads when it comes to explaining the fabulous success Lululemon (NASDAQ: LULU) has achieved over the last few years. The company sells tremendously expensive yoga clothes – in the area of $100 for a pair of pants – but it has still increased sales at 46% annually over the last five years.
The quality of the fabrics and the philosophical meaning of the brand are surely part of the explanation behind such an amazing performance in a tough consumer economy. But these concepts cannot be divorced from the design and overall aesthetics of the products. Beauty is hard to measure and evaluate objectively, but it does have some important implications when it comes to stocks and their potential for gains.
Bold innovators can deliver outstanding returns
Steve Jobs didn't believe in focus groups. He was of the opinion that companies need to push the boundaries of imagination when it comes to innovation if they are going to build truly great products and services.
That's one of the reasons I like Google (NASDAQ: GOOG) so much. The company provides the combination of a rock-solid position in online advertising and some truly amazing projects with enormous disruptive potential.
Google is building some fabulous products like a self driving car or augmented reality glasses; the company is not expecting any money from those projects in the middle term, but they could really have a tremendous impact in our lives over the long term. Google is still thinking big and innovating aggressively with a long term mentality.
These kind of companies, which include both a solid position in a proven business and other activities with disruptive potential, are not exclusively found in the tech industry. Waste Management (NYSE: WM) has a leadership position in the US waste collection industry, which is a natural monopoly with considerable barriers to competition due to business scale, regulatory issues and scarcity of new landfills.
At the same time, the company is also involved in the very exciting business of converting trash into energy; the technology is already being implemented and it clearly has some very attractive possibilities.
Waste Management has 17 conversion plants that capture methane from decomposing garbage at 131 landfill facilities and turn it into electricity. The company converted nearly 7% of its trash into energy last year, and management estimates that if it were able to transform 100% of the 92 million tons it hauled away in 2011, revenues could increase from $12.3 billion to more than $40 billion.
Companies venturing into projects with mind-blowing potential can be very profitable investments in the long term, and when this comes in combination with other more stable and predictable businesses for the same company, the risks look quite contained in case of failure.
Think about the product first, and money later
Steve Jobs didn't admire a lot of people, but Mark Zuckerberg was part of that select group. According to the excellent biography by Walter Isaacson, Jobs respected Zuckerberg's intuition in the social network business, as well as his willingness to put Facebook (NASDAQ: FB) above everything else.
Zuckerberg has resisted the temptation to monetize Facebook aggressively with too much advertising in order to protect the service and its relationship with customers. There are still some unanswered question regarding how much money Facebook can sustainably make, but the company is making the right decision by avoiding investor anxiety over the issue.
I would prefer to have more clarity regarding the company´s strategic direction and future business model before buying shares of the social network, but Zuckerberg seems to have listened to the advice he got from Steve Jobs regarding the importance of products above money.
The relevance of design and aesthetics, the value of being bold when it comes to innovation and putting products above short term money are three valuable lessons which made Steve Jobs one of the most successful entrepreneurs of all times. These are important concepts to keep in mind the next time you go hunting for the best stocks to buy.
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acardenal owns shares of Apple, Google and Waste Management. The Motley Fool owns shares of Apple, Facebook, Google, Lululemon Athletica, and Waste Management. Motley Fool newsletter services recommend Apple, Facebook, Google, Lululemon Athletica, and Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.