Apple believes that personal computing has entered a new era in which the personal computer functions ... as the digital hub for advanced new digital devices. Apple is the only company in the personal computer industry that designs and manufactures the entire personal computer from the hardware and operating system to sophisticated applications... Apple ties it all together with its innovative industrial design, intuitive ease-of-use, and built-in networking, graphics, and multimedia capabilities. Thus, the Company is uniquely positioned to offer digital hub products and solutions.
While pursuing my MBA, I wrote an investor report on Apple for a finance class. On the day I submitted the paper (April 1, 2003) Apple’s stock closed at $14.16. This was my recommendation at the time:
“Apple’s stock can be purchased for just a few dollars more than the company’s cash per share. And there are numerous reasons to be optimistic about unprecedented future growth. Accordingly, I recommend ‘hold’ for current owners and ‘strong buy’ for risk tolerant investors who value short-term stability and significant long-term (five year plus) growth potential.”
If only I had listened to my own advice: Apple completed a 4:1 split in August 2020 making a single share purchased in 2003 equal to 56 shares 17 years later. Given the stock recently closed at $160, a $1,000 bet on Apple at the time of my analysis would payout $627,200 today. That’s a 62,620% gain and a 40% annual rate of return. My, what could’ve been.
Everyone who has ever dabbled in the stock market has a story such as this; but how many of you wrote an MBA Finance paper correctly predicting such a future? That is what hurts the most. However I found solace in learning years later there was a very prominent executive at the time of my paper that was just as confident in the company’s future yet made a similar decision: Steve Jobs.
Brent Arends wrote about it in a MarketWatch commentary back in 2010 (seven years after my MBA paper):
“After the bursting of the tech bubble in early 2000, the Nasdaq Composite had plunged nearly 80% from its peak. Companies had folded left and right. Those left were staggering. Apple had fared as badly as any. Its stock had plummeted from a peak of $36 all the way down to about $7. Jobs and other employees were feeling the pinch. Stock options they had been granted during the boom now seemed completely worthless. After all, Apple stock would have to climb all the way back up to those giddy heights before the options even started to show a profit again. So Apple employees were allowed to swap many of their options for a smaller number that became valuable at a lower price.”
And like most employees, Jobs volunteered to cancel all his Apple stock options in return for a smaller number of shares, worth about $75 million at the time. In hindsight, Jobs would have been better served to keep his original options as it would have netted him an additional $10+ Billion—about 5x his net worth at the time of his death in 2011.
Arends asserted Jobs’ move qualifies as one of the “dumbest trades ever.” Respectfully I disagree. If Arends can argue Jobs was a fool for not anticipating the eventual meteoric rise of the company, I can argue a butterfly effect: had Apple not offered the stock exchange and/or Jobs not shown leadership in following suit, there may have been turnover of key employees who had little long term incentive to stay. Turnover that would have accelerated the further demise of the company and its stock valuation. This was a sliding doors moment and a case of retrospect rather than regret.
No other corporate entity has been as influential in my life as Apple. And while it certainly could have been better—potentially 62,000% better—over the years Apple has been very good to me. No need to lament past decisions.
I think Steve Jobs would agree.
