Tag Archives: Apple

Some Thoughts on Investing from My Recent Interview

In the first few years of this blog I posted occasionally, but still much more than the last few years, on investing and economics. Now I mainly post on those topics on the Curious Cat Investing and Economics blog (see how the name and that practice are in sync with each other?).

I was recently interviewed about investing strategies and thoughts and decided to share that with the readers of this blog. Some excerpts from the interview:

I have maintained a portfolio that I call the sleep well portfolio for 10 years (started April 2005). I hardly have any turnover (under 2% annually I think) and hold stocks I would be comfortable locking in a vault for 10 years. The largest holding there is Apple, followed by Google; I also still really like Google as a long term investment. The stocks in the portfolio for the entire period are: Google, Amazon, Toyota, Intel, Pfizer…

We got out of the “Too Big to Fail” crisis, but have not addressed the core problems – and likely have made them much worse. We didn’t take the opportunity to address the financial system risks created by the actions of “Too Big to Fail” banks. And it seems to me we have left the central banks in a very vulnerable position. They have already played strategies that previously seemed impossible due to the position they were placed in, and if it happens again, what are they going to be able to do? I think the risk of massive economic failure is large enough to consider in an investment portfolio.

How would you suggest an investor guard against the potential for a massive economic disaster?

John Hunter: My main thoughts on that are to greatly value companies that are likely to weather economic calamity greater than any since the great depression. Having tons of cash obviously helps (Apple, Google…). Having a business model that puts a company in a position to make money (even if it is a lot less than they are making today) if the economy does extremely poorly, is also good (Apple, Google, AbbVie…).

It is possible for the economy to be hit so hard Apple, Google, etc. lose money. But if that happens, I believe huge numbers of other companies are going to be out of business, and the economy will be in shambles…

The sleep well portfolio has beaten the S&P 500 by about 220 basis points (on an annual rate of return basis) (see details on how marketocracy calculates returns – they reduce returns by 200 basis points to simulate investment adviser fees). The interview includes much more details as well as links to posts on my investing blog going into more detail.
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Steve Jobs on Quality, Business and Joseph Juran

This webcast shows an interesting interview with Steve Jobs when he was with NeXT computer. He discusses quality, business and the experience of working with Dr. Juran at NeXT computer. The video is likely from around 1991.

America’s in a tough spot right now, I think. I think we have forgotten the basics. We were so prosperous for so long that we took so many things for granted. And we forgot how much work it took to build and sustain those basic things that were supporting out prosperity. Things like a great education system. Things like great industry.
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We are being out-planned, we are being out-strategized, we are being out-manufactured. It there is nothing that can’t be fixed but we are not going to fix it up here, we are going to fix it by getting back to the basics.

I agree with this thought, and while we have made some progress over the decades since this was recorded there is a long way to go (related: complacency about our contribution the USA has received from science and engineering excellence – when you were as rich as the USA was in the 1950s and 1960s more and more people felt they deserved to be favored with economic gifts without effort (forgetting the basics as Jobs mentioned) – Silicon Valley Shows Power of Global Science and Technology Workforce). After World War II the USA was able to coast on an economic bubble of extreme wealth compared to the rest of the world for several decades (and the economic success built during that period even still provides great advantages to the USA). That allowed wealthy living conditions even without very good management practices in our businesses.

Where we have to start is with our products and our services, not with our marketing department.
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Quality isn’t just the product or service. Its having the right product. Knowing where the market is going and having the most innovative products is just as much a part of quality as the quality of the construction of the product. And I think what we are seeing the quality leaders of today have integrated that quality technology well beyond their manufacturing.

Now going well into their sales and marketing and out as far as they can to touch the customer. And trying to create super efficient processes back from the customer all the way through the delivery of the end product. So they can have the most innovative products, understand the customer needs fastest, etc..

The importance of customer focus is obvious at the companies Jobs led. It wasn’t a weak, mere claim of concern for the customer, it was a deep passionate drive to delight customers.

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Marketplace Looks at the Apple Economy

Marketplace looks at the Apple economy in China [the broken link was removed]. Marketplace is an excellent source of actual journalism; rare in the post Bill Moyers days, sadly.

A look inside a Foxconn factory< [the broken link was removed]

The first misconception I had about Foxconn’s Longhua facility in the city of Shenzhen was that I’ve always called it a ‘factory’ — technically, it is. But after you enter the gates and walk around, you quickly realize that it’s also a city — 240,000 people work here. Nearly 50,000 of them live on campus in shared dorm rooms. There’s a main drag lined on both sides with fast-food restaurants, banks, cafes, grocery stores, a wedding photo shop, and an automated library. There are basketball courts, tennis courts, a gym, two enormous swimming pools, and a bright green astroturf soccer stadium smack-dab in the middle of campus. There’s a radio station — Voice of Foxconn — and a television news station. Longhua even has its own fire department, located right on main street. This is not what comes to mind when you think “Chinese factory.”

Yet it is: as you walk beyond the civic center of Longhua, the buildings begin to change.

[the embedded video was removed, so I removed the link]

From a management perspective there is a great deal to be desired in Apple’s manufacturing practices. The economic perspective however, for me, provides a much different picture than those in rich countries (USA, Europe, Singapore, Japan…) often feel.

The jobs provide workers a chance to earn what for them is a great deal of money. Yes the conditions are harsh – I wouldn’t want to have to work there. But I am pretty sure I would not be happier, if I lived in China, and everything else remained the same in China except now all the Apple products were made in Singapore, USA and Spain.

It is good that Apple has pressure to improve conditions at their plants. I also wish they would adopt more lean thinking in their management system. Doing so would likely include moving production to at least 2 or 3 locations (probably adding the Americas and Europe while remaining in China). Apple pays a great deal of attention to customer focus (though they still have plenty to do here too); they really need to pay much more attention to respect for employees (I include their sub-contractors in this statement).

The market is also working. Chinese salaries are rising rapidly. From a very low wage, but still rapidly which is a great thing for tens of millions of people. And there are huge economic spillover affects as those people spend and invest their money (as one of the workers was quoted as saying he is saving up money while working at Foxconn to open his own construction business).

Sometimes Micro-managing Works

Sometimes micro-managing works. That doesn’t mean it is a good strategy to replicate. If you benchmark Apple you might decide that you should have a tyrannical obsessive involved CEO who is directly involved in every detail of products and services. After all Apple is now the second most valuable company in the world with a market capitalization of $324 billion (Exxon Mobil is the top at $433 billion) and a huge part of that is Steve Jobs.

Nice quote from How to beat Apple

Apple products & services that Apple does well are the ones that Steve Jobs uses

An interesting point, and really it doesn’t matter if it is completely true it illustrates a point that Steve Jobs is the rare leader that helps by being completely involved in nearly every detail. And at the same time he provides strategic leadership rivaled by very few others. But if you try to benchmark this (simplistically – as most benchmarking is done) you will fail. This works with Steve Jobs and maybe a handful of other people alive today. But with most leaders and organizations it would fail completely.

On another point Jason Kottke makes, I would normally suggest the opposite approach:

Openness and secrecy. Competitors should take a page from Apple’s playbook here and be open about stuff that will give you a competitive advantage and shut the hell up about everything else. Open is not always better.

I think you may well be better off doing the opposite and countering Apple’s secrecy with openness. It would depend on your organization, but, I think you might be better off trying to exploit Apple’s weakness instead of trying to do what they do well. Now things are never this simple but on a cursory level I think that is where I would look.

Google now has a market cap of $171 billion, Apple is almost double that – just 3 years ago Apple first exceeded Google’s value.