The Apple 'Free Pass'

| About: Apple Inc. (AAPL)

I recently published an article, "Maybe It's The Apron Color," that looked at the share performance of Apple (NASDAQ:AAPL) vs. that of Home Depot (NYSE:HD) during the period immediately following the death of Apple's legendary co-founder Steve Jobs.

That article certainly brought some interesting comments; unfortunately, most of them were directed at an imaginary article, as they found fault with opinions or trading recommendations that were never expressed. One comment was also based on some imaginary concept of an all-benign and humanitarian company, that had an existence that was solely dedicated to the satisfaction of its customers, without regard to such worldly or mundane issues as profits.

One such comment focused on this statement from the article:

"It was backward looking, starting from a very meaningful date in the lifetime of Apple, the death of its heart and soul."

A reader commented:

Apple's heart and soul is alive and well -- better than ever, in fact. Apple's heart and soul is not (and never was) a person; it is an idea and a way of viewing its purpose in the world. It is primarily the idea that everything they do is about delighting the customer. It is NOT about profits, shareholders, marketing, or even employees and management. (Investigate Joel Podolny and Apple University.)

Among other things in my response, I wondered about Apple's pricing strategy, which is typically at a premium to its competitors:

In fact, why not make the customer even happier and reduce the prices? After all, if the price structure contributes to profit and profit is not primary, come on, make every one happier. Will that happen? No, unless there is a significant assault on market share. The epiphany, when it comes, will be dictated by simple market pressures and not a need to create joy in the consumer universe.

Apple's products and stock has clearly become a religion for many and any suggestions that the path taken may have alternative is often met by the virtual equivalent of burning the infidel at the stake.

But even the deadly emotions that wracked medieval Europe came to an end with the Enlightenment.

Shortly before Jobs passed away, the cracks were beginning to show themselves. Andrew Ross Sorkin, business reporter for The New York Times and co-host of CNBC's "Squawk Box" wrote an article that received quite a bit of condemnation.

It wasn't condemned on the basis of the factual nature of the content; instead, it was condemned for the subject matter and perhaps the timing.

The article focused on Jobs' lack of a charitable legacy and, like everything else, whenever you discuss Apple or Microsoft (NASDAQ:MSFT), you have to mention the other and begin the comparisons.

Those comparisons end up devolving into fashion, choice of eyeglasses, haircuts and on and on, once the more substantive issues have been covered. But when it came to Jobs' history of supporting charitable causes, his history and preferences may have been as opaque as the Apple operating system. It certainly wasn't the same open book as had been Microsoft's OS and Bill Gates' philanthropic efforts.

Before I begin to point out the toll that may be exacted if the free pass is removed, I need to say that I have loved those times that I owned Apple shares. In fact, it was one of those rare stocks on which I didn't write covered calls on all of my shares, reserving some strictly for hoped for and sizable capital gains.

The last time I owned shares was a few months and 30% ago. That's a big gain in a short time, but again, matched nicely by Home Depot.

Apple remains a great stock upon which to derive option income by either selling covered calls or puts. For example, for the short-term price pessimists a weekly call option on Apple at its Friday close of $562.30 at a $565 strike offers a $6.75 premium. Equally enticing may be selling the $560 put option for the short term optimists with a $6.95

That's not a bad income stream for a Memorial Day shortened trading week, especially if you think Apple shares will be parked for a while.

Certainly Apple has been a great stock for a long time, minus that short period when Jobs' earlier health issues, having been shrouded in secrecy, became known in 2008 and shares fell 47%, before recovering, as compared to the $S&P 500 which fell 31% during that period.

In the meantime, if you are sitting on huge gains, such as one comment that I received on the earlier referenced article, the real cost of a loss in confidence or introduction in uncertainty can be substantial:'s hard to not have a certain bias towards a company that has turned $30,000 of your dollars into $600,000 and may if things go right turn it into a $1,000,000.

That is very good fortune, no doubt. But the hope that it will appreciate by another 66% is perhaps what may be referred to as "greedy." While I hope that the dream is realized, nothing screams for protection of profits, by whatever means available, than that example.

Like everyone else, at the time, I had something to say about the passing of Steve Jobs. At that time, I didn't own any Apple products. I was wrong when I thought the uber-cool factor was gone once my Sugar Momma bought an iPod Mini.

Then I was wrong when I thought being lampooned on both "The Simpsons" and "South Park" was the kiss of death. And I may be wrong again regarding the loss of the "Apple Free Pass." Apple is more popular than ever. Innovation and buzz will do that.

Of course, my kids have had their Apple products since conception, or so it seems. My youngest son just purchased a MacBook, in the mistaken belief that it will withstand a cracked screen or soda spills better than his earlier PC counterparts.

Apple LisaDespite not owning any Apple products, I do have a soft spot in my heart for Steve Jobs. I was once insanely ready to plunk down $10,000 for the new Apple computer, dubbed "Lisa." For a brief time that computer captured everyone's imagination, albeit not market, but was solely responsible for the drastic increase in newborns being named "Mouse" by their die-hard and tie-dye wearing parents.

As much of a chick magnet as a Lisa computer could have been, I walked out of the little boutique Boston shop and early authorized Apple dealer thinking about what else I could do with that kind of money. I could have bought about 25 laser disk players and at least 10 movie titles, including such classics as "Smoky and the Bandit III" and "Mad Monkey Kung Fu."

I could have bought two of those insanely arcane, straight out of the box IBM PCs. Instead, I started buying stocks. My first was Raytheon, and I held it for three days, getting enough profit to pay about four months rent. How un-zenlike was that trade off? Apple for Raytheon?

Apple has had an uncanny ability to deal with controversy and to behave with a very un-zenlike approach to business that may accurately be described as ruthless. As much as Apple may be admired, it is also reviled by those that have been crushed by it -- not from competition but from cooperation. If any other American corporation had the history of environmental destruction, sweatshop labor (long predating the Foxconn allegation), intimidation through reflexive litigation and the stifling of information exchange, there would be rioting near the their headquarters.

Remember the grief that Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) received over acceding to Chinese government demands regarding the filtering and censorship of search engines? However, when Apple banned all John Wiley & Sons publications from the Apple Store following the publication of the unauthorized biography iCon: Steve Jobs, there was no Congressional hearing, no outrage.

Apparently, not all censorship is created equally.

The list is long and motivated individuals can easily delve further. For the ritualistically bound, practicing a version of the Amish rite of "Rumspringa" may either confirm belief or open eyes to other possible outlooks. Certainly, after practices a reading of Walter Isaacson's authorized biography of Steve Jobs one may question the extent of just how noble Steve Jobs may have been as an individual in both interpersonal and business relationships. The public response to a lifting of the secrecy veil would certainly have been different had it been done so under any circumstances other than impending death.

One can certainly look through the litany of allegations, but some come quickly to mind, particularly for their lack of consequences. The very consequences that would have been fatal blows for other individuals or companies.

Take the options back dating scandal, for example. The SEC considers that practice to be fraudulent. Far worse than claiming that you have an undergraduate degree in Computer Sciences. The public has also, reportedly, perceived the practice to be fraudulent. Jobs' defense, that he was unaware of the accounting implications and that he did not personally profit would have been laughed at under any other circumstances, as there was clear evidence that Apple's CFO had informed Jobs. Beyond that, Jobs may not have profited, but it was his intent to do so.

Compare that to the felon, Raj Rajaratnam, convicted recently of insider trading. He, too, didn't personally profit from his knowledge and subsequent trades. The jury could care less, because he just as clearly intended to have profited mightily.

With word that Apple had over $100 billion in cash available and that much of it was held in foreign banks, thereby avoiding taxes, albeit legally, there has been barely a whimper. Once again, imagine if the same situation, particularly in magnitude had been the case for a lesser idolized company, such as Exxon (NYSE:XOM). In fact, that is the sort of stuff that Congressional hearings are made of and the oil company CEOs are vilified for the hometown C-SPAN viewers.

With Jobs now gone there have already been changes at Apple. Tim Cook, the CEO has instituted a charitable matching program. There is a newly announced dividend on its way and certainly other changes will be forthcoming, as Tim Cooke knows that he can't begin to count on the same kind of kid gloves that were used with his predecessor. The "Steve Jobs Free Pass" also applied to stock price. Shareholders were more inclined to believe the ability of Steve Jobs to deliver upon his vision than for any other CEO.

Remember Michael Dell? At one time Dell Computer (NASDAQ:DELL) could do no wrong. He then gave up the CEO reigns and the "Dell Premium" was lost, as was its corporate vision and execution. The share price followed.

Tim Cook surely realizes the pent up liabilities that may await. Any missteps will be brutally punishing. His decision reported today to give up $75 million in personal dividend income wasn't done in a vacuum. It was done to paint a personally favorable picture, much the same as accepting only $1 per year salary. That is a headline story, with most ignoring the very rewarding small print. Cook recognizes that the "Jobs Free Pass" is priceless and would be well served to make many high profile changes that create more than just an appearance of an angelic existence.

Am I expecting price-related armageddon? No, that would be just as ridiculous as not protecting your gains. You don't have to be a survivalist nut to take precautions.

A Tweet I had sent appeared on the front of the New York Times online edition. The Tweet, as if you really cared, was unusually philosophical for me: "You can't have focus without vision, but Steve Jobs' focus never obscured his vision."

Heady stuff.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.