The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

23 August 2008

Iron out the wrinkles -- or irony?

I consider often the work of Peter Drucker, but this recent TechCrunch article re Apple's growth-related woes really has me thinking... and although its author, Michael Arrington, does not come right out and stipulate Apple's recent miscues to be the result of its torrid growth, that is how I perceive the problems he bemoans:

"But recently I’ve had a string of bad apples come my way, so to speak. It’s time for Apple to stop screwing around and start paying attention to product quality. I’ll excuse the one hour of battery life I seem to be able to get out of my iPhone. An arrangement of extra power cords (USB, car, wall) and external batteries gets me through the day. I’ll also excuse the fact that iTunes seems hell bent on not syncing applications from my desktop to my iPhone, and inexplicably removing apps from my phone without any notice. I love that damn phone, and it will take a lot more than lost apps and dropped calls to get it out of my hands. But I don’t have the same blind dedication to other Apple products, and a string of costly problems has left me more than frustrated..."

I recall how Steve Jobs whooped it up 2 1/2 years ago, when Apple/AAPL shares finally surpassed Dell/DELL in total market cap. We all could hear his peals of excitement as they ricocheted off the walls of 1 Infinite Loop. Steve, too, had a quest; personal and corporate. So what reminds me of Peter Drucker? Peter would regularly admonish business executives, "Don't fix problems; pursue opportunities!"

Please recall that I am not an Apple computer user yet, so I cannot speak knowledgeably with regard to its products. (Although I love my iPod, and am impatient for my iPhone!) Nonetheless, the company will attend to (iron out) the problems Arrington notes, and will clean up its public relations act with the media and the company's customers.

It is, after all, human to make errors -- we all make errors often (me, all the time!) -- but it is rare to learn from our errors, and rarer yet to learn from our successes. Jobs is feted for his incisive intelligence and imagination -- just about as often as he is noted for his incendiary temper -- but I believe that, when all is said and done, he learns. Jobs and Apple, Inc will rectify these problems, stat.

Certainly, my intention is not to diminish the importance of these problems, but to note the irony of it all. "All" what, you might wonder? Well, that Apple/AAPL is approximately midway through its 4th quarter, and will report revenues and earnings numbers on approximately 20 October that, in my informal estimation, will prove leaps and bounds beyond its best quarter ever. Despite the company's claim last month, during its Q3 conference call, that Q4 would show sluggish growth, and which caused the stock to embark on a 4 session 'plummet'.

Meanwhile, through it all, Apple/AAPL shares lurk just beneath their all time high trade of $202.96; to my eyes, it looks increasingly likely the stock will explode into new all time highs soon. The question, then, re the stock is whether new all time highs occur before, or as a result of, the earnings report -- despite (in spite of?) the news that swirls about the company (the problems Arrington articulates), Jobs's health, the parlous state of the global economy, etc...

Stated as a syllogism...

If the company reports the blow-out numbers for Q4, as I expect, and
If the stock does not trade at new all time highs prior to the earnings report,
Then we could expect a large price gap up, subsequent to the earnings report.

Oh, sure, I could be wrong, and the bears [be] correct -- the stock could instead decline $10, $20, or $30 -- but that possibility looks increasingly remote. Which qualifies as the irony of all ironies.

Full Disclosure: Long the shares of Apple/AAPL.
-- David M Gordon / The Deipnosophist

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