“In the last quarter of last year, especially with the change in tax rate coming, I think Investors got exasperated. There were a number of investors that this was their largest holding, And it destroyed their record for last year. There were ramifications for what the board did.”
-Lawrence Haverty, Gamco Investors on Apple’s $137 billion dollar cash hoard
That absurd quote above was heard this morning on Bloomberg with Tom Keene interviewing Haverty. The display of
investing acumen cognitive dissonance is rather ironic.
As a longstanding Apple guy (think Mac Classic in 1989) and someone who was pushing the stock post iPod at $15 (pre-split), I cannot help but be astounded at the current crop of Apple shareholders. Wall Street has always misunderstood Apple but its now getting ridiculous.
Recall that during the run up from a near bankruptcy to the largest company on earth, creatively destroying all competitors in its path, the value guys all touted the cash as a reason the company was cheap. Ex-Cash, its a 9 P/E we heard.
Now, they insist the cash must be returned to its rightful owners — them.
If you want to know why Apple is holding onto all that money (aside from obvious tax considerations), just look at Dell. It is a cautionary tale than any technology company can miss the next shifting tech trend and quickly become irrelevant. Bang, you are the next Maytag. Even Microsoft’s history offers a foreboding look at using special dividends as a salve to investors concerned only with their quarterly P&L (and personal compensation via 2 & 20 fee structures).
David Einhorn is a great investor (and a nice guy), but he joined the Apple party somewhat late, and suffered a setback last year with the rest of shareholders once the law of big numbers set in. He is now suing the company because they have too much cash.
My takeaway is that Graham & Dodd value investors are terrible at buying technology companies (They don’t know how to manage positions)
Now we have guys like Lawrence Haverty the Gamco portfolio manager, who is the source of the quote above. Boo hoo for the investors who feasted on the way up, but — WTF?!? — saw a performance setback because after a 10,000% move, Apple now gave back 30%?
The cognitive dissonance comes from not admitting their error — hanging around too long — and instead blaming the board.
My criticism of the critics is not Monday morning quarterbacking — recall that we took some Apple off the table last year ($625-650) and advised clients to do the same. And we further took that warning public back in October and November of 2012. Those who overstayed their welcomes have only themselves to blame. (Aren’t hedge funds supposed to be, well, “hedged?”)
What should Apple do? For legal reasons, they should hear what these activist shareholder are suggesting, giving them a thorough hearing out, with all attendant chin stroking and “Hmmm, interesting” — prior to ignoring them.
Apple has a long-term strategic plan which for obvious competitive reasons is top secret. Sorry, activist investors, but we cannot share them with you because it would give an advantage to competitors like Samsung and Google and Amazon and Facebook. But rest assured, we have a plan.
However, Apple can tell investors that their strategies may or may not include the following:
-Funding a separate R&D division (like Xerox Parc) to keep fostering “outside the box” innovations;
-Creating a subscription based unlimited streaming music business;
-Make a series of strategic acquisitions (such as Pandora or Twitter);
-Funding a long term Venture Capital division to foster more innovations for the Apple ecosystem
-Supersecret plan X! Its so secret, it would risk of billions of dollars in business, so excuse us if we cannot tell you.
Technology is a fast moving sector of the economy, where trends shift quickly and alliances change overnight. Having a cash hoard gives Apple maximum flexibility to deal with this for their future.
Sorry if after 30 years, changing the dynamic in no less than 6 industries, creating the biggest technology firm in the world and briefly, the biggest company of any sort on the planet, we had a bad couple of quarters. That was inevitable.
It was obvious that Apple had to eventually run into the law of large numbers. Perhaps less obvious was the law of activist fund managers: No matter how much money a company makes for investors, they all eventually want more . . .
Popular or Best? (ATPM January 1998)
Analysts Still Underestimate Apple (Real Money, Jan 13, 2005)
Is Disney/Pixar the sequel to Apple/NeXT ? (January 30th, 2004)
Apple morphs into a Consumer Electronics Co (April 25th, 2004)
Apple to Music Industry: Monetize Your IP (April 28th, 2004)
Apple Now a Major Music Retailer (RealMoney.com 12/08/05)
Apple Now More Valuable Than Microsoft (May 26th, 2010)
A Few Thoughts on Steve Jobs/Apple (January 18th, 2011)
And then there were none: Apple’s destruction of rivals (Washington Post, September 4, 2011)
Why Apple should use its cash hoard to buy Twitter (Washington Post, March 23, 2012)