Steve Jobs was a man that believed that one man can change the world. He was right.
Unfortunately, a necessary corollary of that insight is that the death of one man can change the world.
With the death of Steve Jobs, Apple (NASDAQ:AAPL) has changed forever. Apple will never again innovate and/or execute at the same level.
Apple and Buffett’s Fool Test
One of Warren Buffett’s most important investment criteria is that one not invest in companies based on the quality of management; rather, one should look to “invest in companies that even a fool can run.”
Apple is not the sort of company that can be run by a fool. As shareholders of Palm, Sony (NYSE:SNE), Nokia (NYSE:NOK) and Research In Motion (RIMM) can attest, consumer electronics is a business that is for innovative geniuses only: It requires pulling off a revolutionary innovation every two or three years.
Companies that fail to continually “pull a rabbit out of the hat” can literally go from investor darlings to bankrupt from one moment to the next.
Tim Cook is a brilliant guy and a tremendous manager. And Apple has incredibly talented and dedicated personnel at all levels. However, they and all of Apple will be diminished without Steve Jobs.
Steve Jobs was to Apple what Michael Jordan was to the Chicago Bulls; what Bill Russell was to the Boston Celtics; what Magic Johnson was to the LA Lakers; what Roger Staubach was to the Dallas Cowboys; what Diego Armando Maradona was to Argentina’s national soccer team. These were gifted players that made incredible contributions on the field of play. But that is not what the true greatness of these players was all about. The true greatness of these athletes consisted of the fact that their mere presence on the field made everybody around them better.
It’s a harsh thing to say, but the entire management team currently in place at Apple, and the entire company, would be a bunch of also-rans without Steve Jobs. Steve Jobs was the creator and savior of Apple. Without Steve Jobs, none of what Apple is today would even exist.
To think that the institution that he left behind can continue to innovate and lead at the same level without him is naïve. This denies the role of personality in history.
Apple is not the type of company that can be run by fools. It is the type of company that must be run by a creative genius in order to maintain its edge.
Why Apple Is Apparently So Cheap
Apple’s stock is puzzlingly cheap if you look at its multiples of earnings and cash flow and compare them to the company’s projected growth rate. Indeed, if you do a discounted cash flow analysis taking current consensus projections for the next five years and gradually reduce the projected annual growth rate after year five to 5% by year nine, the market is implicitly assigning exactly zero value to Apple as a going concern after year nine.
Yes, that is right: The market implicitly is paying zero dollars for Apple as a going concern as of 2020.
This is not as irrational as it seems. Consumer electronics is a tough business – even with Steve Jobs at the helm. But, without Steve Jobs there is no telling where Apple will be four years from now – much less nine.
Again, recall the fates of Palm, Sony, Nokia and RIMM; less than two years before analysts were claiming that these companies could not survive, they were considered dominant leaders.
The media is going to be full of stories in the next few days quoting financial analysts regarding how the death of Steve Jobs does not matter, that the company is going to continue to do great and dominate the field of consumer electronics without him.
Don’t believe it. You don’t just replace Steve Jobs with some fuzzy concept of an “organization” or an “institution.” Institutions and organizations do not “think,” they do not “create” and they do not “make decisions” that lead to greatness.
Ignore the spin, folks. Tim Cook and a thousand other talented engineers and executives do not equal one Steve Jobs.
Steve Jobs was not just one more cog in the wheel of an innovation and money making machine called Apple. Steve Jobs was the heart and soul of that company, and without him, Apple has taken one giant leap closer to mediocrity – and perhaps even irrelevance.
Business is not as usual at Apple. Tim Cook and the employees at Apple don’t even know it, but I will go so far as to say this: After the death of Steve Jobs, Apple is a company that is fighting for its life.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.