Friday, August 26, 2011

What Steve Jobs Did Well

I guess I should join the chorus of commentators eulogizing Steve Jobs' tenure as CEO of Apple.  Regardless of what you think of Jobs or of Apple products, you cannot deny that Jobs created substantial wealth for Apple shareholders, as well as for a slew of customers and suppliers.  Many of the latter would not even exist were it not for Apple.  There is an excellent op-ed in the WSJ today extolling Jobs' virtues as a man who created his own markets.  This, I think, is one of his greatest strengths.  He was not an inventor of much, but he was an innovator in that he could take new technology and find a way to make it palatable, even cool, to the everyday consumer.  This allowed him to reap economic profits from industries that had become commoditized for all his competitors.  He realized that he wasn't selling computers, he was selling a lifestyle.  This realization allowed him to expand from computers into MP3 players, phones, tablets, etc., because he was just bringing the value proposition he offered to a wider range of vehicles.  He has been compared to Thomas Edison in recent days, and I think that is fairly apt.  At least, it is in the sense that Jobs' genius was not in inventing technology, but in finding ways to market technology (and I don't just mean advertising) so that it would really add value to people's lives.

I had previously written that I thought Jobs had done a terrible job of preparing his organization for his eventual exit.  I believe this was true when he took medical leave in 2009, but I no longer think so.  Since then, he has groomed the new CEO, former COO Tim Cook, for the job.  Cook has effectively been running Apple since Jobs took on a diminished role in January.  This has eased the transition, and allowed the incoming CEO to hit the ground running.  The market knows Cook, the employees know Cook, and I think that Jobs will be effective in his new role as Chairman, providing some of his ingenious marketing insights, but otherwise staying out of managing the company.  As evidence of Jobs' effective succession planning, note that even though Apple's stock price dropped 5% in after-hours trading when the succession was announced, by the time trading opened the next morning, that drop had been cut in half.  That's as it should be.  A good leader prepares for his eventual exit so that the organization barely notices when he bows out.  Clearly everyone noticed, but I think that the questions about Apple's future will soon abate.  This is all the more remarkable given the suddenness of Jobs' announcement.

So, here's to Steve Jobs, a man who in the last decade and a half created, out of nothing, roughly $350 billion in shareholder wealth.  Not a bad track record for a career.

Friday, August 19, 2011

Two Great Perspectives on a Pretty Lousy Idea

In today's post, we get two for the price of one.  I am talking about a news story that brings us the wise musings of two capitalist ubermenschen.  The other day, Starbucks founder and CEO Howard Schultz (not one of our story's heroes) proposed that CEOs pledge to withhold their political contributions until Congress and His Majesty hurry back to Washington and start brewing up some deficit reduction.  While I'm all for lightening politicians' wallets, I have little faith that something like this would accomplish anything more than making Schultz feel less guilty for all the money he made charging too much for coffee.

Here is Paragon of Virtue #1 John Alison's take on the plan:
"If businesses and executives stop donating, does that mean pensions and unions will stop too?"
He makes a good point.  Businesses don't really donate because they think politicians are doing a good job.  They donate as damage control, and usually to counteract the efforts of...well...pensions and unions.  The article from Reuters also mentioned Warren Buffett's monumentally stupid plan to tax the rich more (real original, Warren).

Here is what the article said about Paragon of Virtue #2 T. J. Rodgers, Founder and CEO of Cypress Semiconductor:
Rodgers, who said that more than half of his income goes to the state of California and to federal taxes, is no fan of the Buffett plan.
The CEO, who invests his money in start-ups and other ventures, said the government would "invest" the extra tax money "in pork barrel projects of dubious merit, controlled by political rather than market forces" without added benefit.
"The fact is, the country will be less well off if they're investing my money instead of me," said Rodgers, who added that he has "been on the Schultz plan forever" because he doesn't give money to political candidates.
Well put.  It's nice to see prominent Objectivist businessmen getting called for their opinions on matters like this.  I think it's a good sign.

Monday, July 25, 2011

Why I Will Never Buy Google Stock (Again)

I think Google is a pretty good company.  At least for the time being, they seem to be able to capitalize on their current strengths (search) as well as have an eye on future growth opportunities (Android).  I think that they are currently fairly valued at about $600 per share.  Last summer, when they dropped below $500 per share over fears about an aging business model, I thought they were undervalued and I bought.  The stock went back up to $600 and I sold.  This spring, the stock dropped below $500 again (same old fears, no new evidence) and I thought: "I should buy."  But I didn't for one simple reason, and I subsequently missed out on the rise back to $600 that the stock experienced when it released its earnings.  And I am not the least bit upset about not grabbing that opportunity.

The reason is that while I think Google's business model is sound, I don't trust the Justice Department to leave it alone.  Google is the new Microsoft, meaning that one day or another, the government will see it as an unstoppable behemoth (tell that to Mark Zuckerberg) worth of an antitrust suit.  The more successful Google's business becomes, the more likely this outcome.  The writing is already on the wall.  This is what antitrust does to strategy and investing.  If the government decides that Google controls too much of search, their goes their revenue stream and shareholders take a haircut.  Frankly, I just don't think it's worth the risk.

It is important to note, I think, that since antitrust came on the scene, most prosecutions are not instigated by the government, they are instigated by competitors complaining that the companies out-competing them in the marketplace are being "anti-competitive" by competing too well.  This is what laws like antitrust do to competition.  Firms succeed based on their ability to lobby the Justice Department and the FTC, not on their ability to provide superior value.  Ironically, most of the antitrust threats against Google are coming from Microsoft.  Now tell me, faced with an environment like this, why would a person of integrity ever want to go into business?  They'd get eaten alive.

Wednesday, July 20, 2011

Why I Think News Corp Will Survive This Crisis

For those who are unaware, News Corp, owner of half the world's media including Fox, Dow Jones, and a whole lot more, was recently embroiled in a scandal.  It seems that employees of News of the World, a British tabloid owned by News Corp (at least it was until the paper closed last week), were hacking people's phones.  And these weren't just any people's phones, they were, like, really pathetic people's phones.  We're talking families of dead and missing children.  Pretty sick.

Anyway, this has ballooned into a gigantic ethics scandal involving News Corp. CEO Rupert Murdoch, his son, bigwigs at Scotland Yard, and even UK Prime Minister David Cameron.  Many have been talking about the 80-year-old Murdoch stepping down as a result of this embarrassment.  News Corp. has already abandoned its bid to acquire the remainder of British media outlet BSkyB, and there are a lot of questions surrounding News Corp.'s future.  Here is what I think about two of those questions:

Question: What will happen to Rupert Murdoch?

Answer: Probably not much.  Murdoch's family owns 40 percent of that company.  Odds are that he isn't going anywhere.  Yeah, the press will beat him up, but the press has been beating him up for years because of his political views, so that's nothing new.  A more interesting question is, "Should Murdoch step down?"  To this I also say "no".  At least, I don't think he should do it right now.  Murdoch has built this company from the ground up, and it pretty much runs on his vision.  Of course, he will die one day (some liberals' theories about him being a real-life Voldemort, notwithstanding), and because of this, it is crucial that he establish a succession plan.  That would be the prudent action to take now.  Develop a succession plan, and then gracefully bow out in about a year or so once all this mishegas has blown over.  He could probably assume an executive chairman role, but pass on management of the firm to his son or to this apparently very capable second-in-command.

Question: How will this crisis affect News Corp.

Answer: It won't!  Here's what makes crises potentially disastrous for companies.  In any crisis, usually some stakeholder is hurt or perceives themselves as potentially in danger.  In this case, it was some people who got hacked.  In BP's case, it was a bunch of fish in the Gulf.  In Toyota's case, it was all of their customers.  What makes a crisis potentially disastrous is that the stakeholder who got screwed is the one buttering your bread.  Yes, BP's stock tanked when they turned the Gulf into salad dressing, but their customers stopped buying BP gas for about a nanosecond.  Their revenues stayed where they had been, and no one even remembers the damn oil spill.  Conversely, Toyota (even though very little actually happened) appeared to put all their customers at risk.  WOOPS!  There go the sales.

Now look at News Corp.  They hurt some people who were newsworthy.  Here's the funny part: while some people may feign outrage, they're still tuning in to Fox News to learn about the scandal.  Murdoch is actually making money off his own screw-up!  Isn't capitalism awesome?  Ultimately, we like hearing about this stuff, even though we may think it's wrong, and so the only way a media outlet could actually hurt themselves is to be boring (you listening, MSNBC?).

Monday, July 18, 2011

Government Efficiency

My good friend A.J., who is currently proudly serving our country, sent me this delightful little anecdote:
I had to get a new hat because the Army changed from berets to soft caps. Then without warning, they moved up the date of the change, so instead of having a week to get one, I afternoon. The military clothing and sales store on post that sold them was sold out of all usable sizes, and wouldn't have any more in for another week. After that week, I'd have to get rank sewn on, which currently had a 3-day wait. So I was basically stuck without the new hat I needed for about 2 weeks. Except that on the day I needed the hat, I walked into a small Korean alterations store, found an abundance of said hats, and got the rank sewn on in about 5 minutes. Whole thing was probably 50% cheaper than the process on post, as well.
What is the moral of this story?  Yes, the government is a grossly inefficient bureaucracy and the military is no exception. But I think there is a more pressing issue here: 60 years later, Korea is still kicking our ass.

Friday, July 15, 2011

Two Perspectives on Job Creation

Hi Everybody.  My comprehensive exams are over (I passed), and now I can devote some time to blogging without feeling guilty.  Today, I want to talk about "job creation" since that term has been batted around so much lately.  I won't pull out any of Fearless Leader's quotes on the matter.  I think everyone can predict my opinion of those.  Instead, I want to contrast the statements of two high-profile business leaders.

The first comes from an article that appeared today on, written by capitalist He-Man John Allison.  For information on Allison, see some of my earlier posts.  His article has several observations you would expect from an Objectivist.  I won't get into all of them, but here's a choice sample:
Jobs are created so businesses can develop new products and services — and improve existing ones — and expand into new markets — and increase the quantities produced, and the efficiency of that production.
Sounds good, right?  Jobs are not created as an end in themselves, but rather as the means to make more money.  Contrast Allison's take on jobs with a recent article describing General Electric CEO (and Obama crony) Jeff Immelt's speech before the U.S. Chamber of Commerce:
At a conference where many of the comments were focused on government barriers to hiring, GE (GE, Fortune 500) Chairman and CEO Jeffrey Immelt acknowledged there needed to be some policy changes by Congress and the Obama administration. But he said that the responsibility for hiring lay with businesses.
"The people who are part of the business sector, the people in this room, have got to stop complaining about government and get some action underway," he told the group. "There's no excuse today for lack of leadership. The truth is we all need to be part of the solution."
Platitudes notwithstanding, what exactly does Immelt propose as action?  What is the solution?  Hire more.  Don't worry about those pesky profits.  Just hire more people, and stop complaining about how the government is making it impossible to hire more people.  Just do it!

Okay, Orren.  I mean, I understand that Immelt is basically working for Obama at this point, but does he have to be so transparent about it?  Where's the finesse?  Luckily, the rest of the Chamber didn't quite see things Immelt's way.
The Chamber also released a poll of small businesses that showed only 19% of businesses plan to add jobs in the next year, little changed from the 18% that increased their payrolls in the last year. Nearly 40% of those surveyed cited either worries about what the government will do next, the requirements of the new healthcare bill or too much regulation as the number one obstacle to hiring.
The comments also made me fell a little better:
JeddMcHead, 07/13/2011 11:40 AM
OMG, this tool needs to be put in the shed. Permanently.
Couldn't have said it better, myself.

Tuesday, March 22, 2011

Points for Honesty

As I'm sure many of you have already heard, AT&T is trying to buy T-Mobile from Deutsche Telekom.  Naturally, the antitrust goons have raised hell, along with Sprint who isn't real happy about the deal.  I'm sure that I have discussed on this blog how Antitrust laws are the Jim Crowe of business regulations.  They are the most unjust, indefensible business laws on the books.  Being indefensible, they have garnered a creative assortment of proposed justifications of the economic, moral, and social varieties.  The best one yet, the most honest and the most frightening, I heard a couple days ago while watching CNBC.

Steve Forbes was guest hosting, and they were interviewing one of Clinton's Fascist Communication Commission Chairmen by the name of Reed Hundt.  They were talking about this acquisition, and Forbes asked Hundt something like "Don't you think that antitrust is fairly obsolete in this case?  These aren't large manufacturing firms than can stifle competition.  Competition in this industry is incredibly fierce between the two major players."  Ignore the problems with that question for the time being.  Here was Hundt's answer, paraphrased:

"Well, I've been an antitrust lawyer all my life, so if antitrust is obsolete than I'm in a lot of trouble."

I think that boils antitrust legislation--and most regulation--down to its essence.  Antitrust is right because it's my job.  Love it!