Do you remember the day-trading commercial featuring a guy named Stewart in Ameritrade: Let's Light This Candle? What about the Morgan Stanley advisor weeping at the wedding ceremony or the 2009 Citigroup’s ad in Barron’s emphasizing its two hundred years of investment wisdom?
Why I am bringing up these ads? These tidbits of information reveal a great deal about a company's culture, and they are often a warning sign of some big stock gaps to come.
To prove my point, compare the annual letter to shareholders of a company such as Amazon.com with its Wall Street counterparts before the crisis. The difference is stunning. Amazon.com’s letters emphasize obsessing about the customers while Wall Street pimped their capabilities. Wall Street's extreme hubris was followed by a total collapse in the share price of most financial companies.
We would have avoided many mistakes in our investment careers if we had kept a closer watch on the culture temperatures of our portfolio companies.
Today, I want to bring to your attention some warning signs I see with the darling of all investors: Apple.
What are the specific issues troubling me about Apple?
• Steve Jobs’ statement about people not reading anymore.
• Apple’s deal with publishers forcing higher e-book prices and taxes on customers.
• The whole Genius concept sounds arrogant to me.
Many people are pinning their purchase of Apple shares on the following premises: Apple can do no wrong, the stock is going up, and it is an ever-growing money machine. That could be very true, but I rarely hear the critical side of this argument.
Are Apple investors asking the following questions?
What if Ipod sales taper?
What if the Android mobile platform starts eating into the Iphone market share?
What if Kindle app on most devices proves more popular than Ibook?
What if other tablets such as the rumored Google tablet start competing aggressively against the Ipad?
A little more water in the Apple Kool-Aid might be appropriate at this point. What do you think?
Disclaimer: No position in Apple at this time.