Wednesday, December 17, 2008

Apple's future vs Bernard Madoff's past

Two men seem to be dominating the current news cycle. One of them, Bernard Madoff, has allegedly been taking new investor's money and using it to pay departing investors for years. The other fella, Apple's Steve Jobs, has been using profits to build a solid business based on reliable consumer products and the software that runs those tools. Mr. Jobs has also been at this effort for decades.

Apple logo and Thomas Jefferson 000299

Both men are now moving out of the picture, one likely to jail and the other possibly to a well-deserved retirement. It makes perfect sense for the investors in Madoff's firm to panic and run to their lawyer's offices. It is completely absurd for investors in Apple Inc. to suddenly sell their stock. In both cases I suspect the reason investors are panicking has more to do with a failure to closely examine the books.

Madoff apparently operated in secret, that lack of openness should have raised a red flag among shrewd investors. Fund managers that gave Madoff a billion dollars or more without knowing how the money was being invested should be prosecuted along with him. The Securities Investor Protection Corporation notes that Mr. Madoff kept falsified and unreliable records. The argument "Well, everyone else trusted him with their money, why was it wrong for me to trust Mr. Madoff?" simply does not hold water.

I am a small investor yet I can and do look at the detailed records of the funds and equities I own. I examine the public statements. I personally look at how effectively the products and services are delivered to market. In many cases, I actually use the products and services of the firms where I invest my money. My clients literally send me to work in the largest markets where consumer products and services are sold.

This brings us to Apple Inc.. This consumer products firm has been gaining market share year after year. It is by far the dominant producer of very popular portable music players. In 18 months Apple has gone from no position to #3 in the lucrative smartphone market.

Blackberry Bold iPhone.jpg

Additional services, such as the Apple's
AppStore for iPhone applications, are growing at a very healthy pace. In the field of personal computers, it appears to be gaining an additional one percent market share at least every 12 months. That last effort is even being accomplished without a significant corporate marketing operation. Finally, Apple's books clearly show that it had nearly 25 billion dollars cash in the bank at the end of September, 2008.

Investors running away from Apple Inc. based on a rumor about the health of any single employee, even if that employee is the CEO, have clearly failed to study the details of their investment. It is easy to understand Apple's wise decision to walk away from IDG's increasingly greedy convention business. They can surely get more value for their marketing dollars in other venues. Apple's success is hard won on the shoulders of thousands of dedicated employees and millions of loyal customers. There is no sign they are abandoning the business and every sign that quite the opposite is happening.

All the evidence presented so far by parties large and small can lead to only these conclusions. Investing in Bernard Madoff's firm was foolhardy and clearly a risk not worth taking by any experienced fund manager. Investing in Apple Inc. is an intelligent choice that any fund manager can clearly see will lead to future growth.

Note: After many years, the author confidently continues to hold shares in Apple Inc. and other solid investments.

1 comment:

Tim Cray said...

I loved mobile picture very much
Stock fotografie