Apple's Schadenfreude
Jamal is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Being a youth in the 90s has made me uniquely suited to be a patient investor. This decade was essentially bookended by the election of a charismatic president that came from a single parent household to that same president committing one of the largest personal transgressions the Oval Office has ever seen. Unlike the 80s yuppies, whose gift to society was “be perfect at all costs,” our mantra was “you’re not perfect, but it’s ok.” With songs like Radiohead’s Creep and Beck’s Loser providing the soundtrack to our decade, we uniquely understood our leader wasn’t perfect. In fact, there was almost a disdain for perfection because we felt it was a façade, an ephemeral, fleeting condition that given enough time, would self-correct. In addition, there was a little joy to be had when the veil of perfection was shattered and laid bare, especially if preceded by hubris. The Germans have the perfect word for this, schadenfreude.
Seattle Schadenfreude
The great companies of our era, like bands of our era, came from Seattle, and are still great buys today. Starbucks and Microsoft (NASDAQ: MSFT) eventually understood the message of the 90s, they were not going to be perfect forever, and that’s ok. However, these lessons were not learned quickly. Microsoft’s former CEO, Bill Gates, was known to be verbally confrontational to employees and once gave such an evasive testimony during his Anti-trust trial, that he argued over the definition of the word we. Bill Gates eventually retired, and now uses his immense wealth to make the world better. Microsoft is still a great value stock, but the days of immense growth are far behind, relegated to an era of dial-up connections and Y2K fears.
Starbucks (NASDAQ: SBUX) suffered from another type of hubris, aggressive expansion at all costs. In the 2008 recession, Starbucks was forced to close nearly 10% of their stores. Howard Schultz, the CEO of Starbucks, came back to right the ship and has done that and more. Since his return, the company has added an instant coffee called VIA, a home brewing machine named Verismo, and recently bought Teavana to diversify its product mix. In addition, Schultz started the “Create Jobs for USA” campaign to bring much needed capital to small business to create jobs. The company is a great organization with a sustainable business model.
Apple’s Turn?
With Apple (NASDAQ: AAPL), I don’t have schadenfreude, but rather schadenfreude light. The company still has a large following, and the je ne sais quoi of a brand leader. However, in order to keep this coveted status, Apple needs to continue to innovate. Sadly, I cannot say they are doing this. Apple’s newest products seem to be reiterations, in essence repackaged products with shiny new bows. Even worse, many of these changes are riddled with glitches (See Siri and Apple Maps). In my opinion, Apple removed Google’s (NASDAQ: GOOG) YouTube and Map Applications over a personal grudge. If so, there is nothing that screams hubris like providing your customers a substandard product over personal animus. Even worse, Google’s YouTube is the second most popular free app in Apple’s app store with a version that actually makes Google more money through advertisements. It has also been reported that Google is planning to release a version of Google Maps to compete with the flawed Apple Maps. Apple simply cannot continue to enjoy its large profit margins by providing unimaginative, substandard product.
Reality Bites
In one of the great albums of the 90s, W. Axl Rose once inverted a Bob Dylan lyric by saying “You don’t talk so loud, and you don’t walk so proud” that perfectly encaptured the moment that schadenfreude is realized. Many growth stocks have realized this feeling in the past, costing their investors millions in the process; the lucky companies have gone on to become value plays. Apple’s five year CAGR for net earnings is 65.2%. If you believe they can replicate this for the next five years, maybe your stock analysis is suffering from hubris. If you believe that Apple is a quality company, but analysts are projecting higher growth rates than are possible; you are a true 90s investor and I hope to see you at the next grunge festival.
TMFJCar owns Microsoft. The Motley Fool owns shares of Apple, Google, Microsoft, and Starbucks and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Apple, Google, Microsoft, and Starbucks. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!
