Sunday, April 22, 2012

Having the courage of my convictions

Listening to the radio while running errands Saturday, I heard a stock technical analyst (on his own infomercial) brag that by using charts, he bought Apple stock at (split adjusted) $12 in 2004. (Even with the recent correction, AAPL closed at about $573 on Friday.)

It was obvious that he knew nothing about the stock or the company when he bought it, but instead was reacting to trends in the shares. I get it: that’s what technical analysts do.

On the other hand, I know more about Apple, its history, its strategies, strengths and weakness than the majority of potential investors out there. I was an Apple software developer for 17 years. I did my PhD on Apple. With Michael Mace, I wrote perhaps the first academic research paper on the iPhone and the reasons for its success. But I never bought a single share of Apple stock after Steve Jobs returned. (In the 1980s, AAPL had a well-defined trading range, so I’d buy it for $25 and then dump it when it got up to $50 — then repeat the pattern.)

Some of this is because I’m not an active investor — I’m too busy. Some of this is because I have trouble judging “under valued” because I can’t assess the market psychology required to make that interpretation. And then there’s the conflict of interest: I sold Qualcomm shares H2 2008 because of the conflict with my SD Telecom blog. This was the only holding I cashed out before the financial crash, but I missed a net runup of about 40% since then.

So after hearing the expert on the radio, I thought I’d check when I might have bought AAPL.

The first of my 115 (so far) iPhone postings came in the ninth posting to my blog, on January 29, 2007. The posting summarized what a news report said about Apple-Verizon negotiations that led to AT&T getting a US exclusive. AAPL closed at $86 (I’m rounding to quarter-points).

On May 1, I opined on Apple’s sales prospects (AAPL closed at $99.50). I was very cautious on iPhone sales:

My prediction: the iPhone ramp-up is going to be slow, due to manufacturing problems and the Cingular exclusive, and thus only sell about 1.5 million phones in 2007. Over time, they will solve this with model proliferation beyond Cingular and eventually tap overseas markets. Therefore, I believe Apple will beat its (deliberately understated) prediction of 10 million phones sold for June 2007 - December 2008.
Instead, Apple sold 3.7 million phones in 2007, so I was off by more than 2x.

On June 2, I presented the first slides from our iPhone paper that said:
Our Premise
The iPhone could change the mobile phone industry:
  • Nature of devices
  • Vendor-consumer relationships
  • Vendor-operator relationships
  • Value and use of content
Of course, there are limits to drawing inferences based on vaporware
Apple shares closed at $118.50 on Friday June 1.

Finally, after the original iPhone mania the shares pulled back July 24 on AT&T activation news, closing around $135.

Normally I speculate in tech stocks with $10k in my IRA, but let’s assume I put $20k in after I gave my iPhone talk June 2. That’s $20k would be worth slightly less than $97k today.

So I “lost” about $75k not investing my money where my mouth was. That wouldn’t put me on easy street, but it might have allowed me to retire a year or two earlier, or pay for a year of college for my teenager when the time comes.

Given Apple is not going to retrace the past five years, I’m not sure what’s actionable here. And unless I’d bet on AAPL to the exclusion of almost any other tech stock, my wins would have been diluted by a stock that went sideways (MSFT) or lost money (NOK down 7x).

Friday, April 20, 2012

Changing the world through execution

In teaching strategy, I always note the tendency of us academics — as well as executives — to over-emphasize strategy development over strategy implementation. Now the world’s most famous open source developer — a 42-year-old Finnish-American father of two — is making the same point as he rejects accolades and perhaps even a €1 million Millennium Technology Prize.

The Register quotes the originator of Linux as saying:

One of the main reasons I think Linux came to be successful in the first place was that I never had very lofty goals. The goalposts for me were always a few weeks out - never some kind of "one day, this will change the world". It was much more pedestrian than that, and I actually think that's the only way to make real progress: one small step at a time, not looking too far ahead to see the details.

People like to idolize the "ideas" and "inspiration", but in the end, almost anybody can have an idea. Getting things actually done is where people stumble.
I couldn’t agree more. The article doesn’t mention it, but Linux was actually a latecomer to the Unix knock-off market: Linus Torvalds started Linux because he couldn’t get Minix to do what he wanted, and the various *BSD variants were clearly technically superior to Linux through most of the 1990s.

I found the Reg’s article by reading a Tweet® by my friend Matt Asay:
Matt Asay @mjasay

Torvalds: 'I'm no visionary'. Anyone can have an idea. Execution is what matters <Changed the world by not trying to
Anyone who’s read the history of Linux and Linus Torvalds knows (as Matt does) that Linus didn’t set out to change the world. But he followed up his idea with good and consistent execution, and imposed a discipline on his bazaar community so that the contributed code met his implementation standards.

Wednesday, April 18, 2012

Fossil fuels: they're not gone yet!

From an interview with Daniel Yergin in the April 2 issue of Business Week:

Charlie Rose: Why have gas prices become such a huge political issue in America?
Yergin: There are two reasons. One, this is the one price everyone sees every day. And secondly, it’s something that, you know, people feel very directly and immediately. They feel it in their pocketbooks and feel it in their wallets. Seriously, for a lot of people, when prices go up like this, it’s a big and unexpected financial burden.

How much difference would the Keystone pipeline make?
It’s not only U.S. oil production that’s gone up, it’s also Canadian oil sands production, which has almost tripled since the beginning of this century. Canada’s now our most important source of oil by far. And the Canadian oil sands—to get the volumes in perspective—they’re greater now than Libya’s output before the civil war. The oil that would flow through Keystone is equivalent to about a third of Iran’s total exports. There are a lot of arguments about Keystone, but the argument that people haven’t paid as much attention to is what it would mean for our energy security. Keystone would signal that, within two years or so, there would be major new oil that would help shrink the number of Iranian barrels on a tight world oil market.

How does fracking change the picture?
The development of shale gas has created—my company [Cambridge Energy Research Associates] did a study—indirectly something like 600,000 jobs. It is a major stimulus to the revival of manufacturing in the country, and in ways that were not anticipated a few years ago. This inexpensive, abundant energy, directly and as a source of electricity generation, makes the U.S. more competitive in the world economy.

What about environmental risk?
I was on a committee that did a report for [Energy Secretary] Steven Chu and Obama. What we concluded is that there are environmental issues to be addressed, and we identified 20 pragmatic ways of addressing them. There’s this public debate, and then there’s what seems to be reality. The scientists on the committee were firm: The chemicals that are used that have gotten attention, it’s very, very unlikely that they’re getting into the water supply. What needs to be managed is what you do with the spent water from the drilling.
A full-time consultant, Yergin is perhaps America’s most famous energy economist — a former Harvard lecturer and the author of several energy policy books, including the famed Carter-era book Energy Future from the Harvard Business School and more recently The Prize and The Quest. While predicting the future is always a matter of opinion, it’s hard to think of a more authoritative source on this subject.

Saturday, April 7, 2012

Facebook as a 'public' forum

A big news item this week in SoCal (if not nationwide) has been the military trial of the Camp Pendleton Marine who publicly criticized the president. A military hearing Friday ruled against Sgt. Gary Stein, 26, of Temecula, self-proclaimed leader of the “Armed Forces Tea Party.”

I wanted to root for Sgt. Stein, given my belief in free speech and my particular revulsion at deliberate efforts in 2000 to invalidate the votes of overseas military. At the same time, a civilian-controlled military (as the US has always had) must have certain lines that are not crossed.

The 2008 regulations for military conduct seem relatively fair. For example, Write a letter to the editor of a newspaper expressing the member’s personal views on public issues or political candidates, if such action is not part of an organized letter- writing campaign or a solicitation of votes for or against a political party or partisan political cause or candidate. If the letter identifies the member as on active duty (or if the member is otherwise reasonably identifiable as a member of the Armed Forces), the letter should clearly state that the views expressed are those of the individual only and not those of the Department of Defense... Make monetary contributions to a political organization, party, or committee favoring a particular candidate or slate of candidates, subject to … applicable law. Display a political bumper sticker on the member’s private vehicle
The restrictions for active duty military mainly ban “partisan” activity. Clearly, arguing for or against a president nominated by a political party would count. (Does that mean it would have been ok to criticize a President Perot? It would have been so easy…)

I don’t know all the facts of the case, including what he did and what warnings he received before the prosecution began. For example, many of the Tea Party organizations were organized as non-profits, advocated for things like reduced taxation and spending, but never endorsed (or attacked) specific candidates. I don’t know if Stein crossed that line, but the penalty — loss of his job, an other-than-honorable discharge, loss of post-separation benefits — seem harsh by civilian standards. (While his attorneys might argue for a “general” discharge, apparently this would not save his GI Bill benefits).

Still, one open question is whether certain forms of online participation count as public advocacy. (Again, I don’t know what Stein did — so this might not apply in his case). The Marine Corps Times — picked up by USA Today — reported that an attorney for the commandant of the Marine Corps is asking the DoD to clarify policies for “social media” in an updated version of the regulations.

Let’s get real here: we’re not talking about “social media” — we’re talking Facebook. An open Twitter stream is the same as posting to a web page or shouting on a rooftop, and today “Google+” remains a negligible portion of the world’s social media traffic (beyond Google employees). So for today, this is really (like so many other things) a Facebook issue.

I have 82 Facebook friends. My rule for Facebook is that I wouldn’t friend someone who I haven’t (or wouldn’t) invite into my home, or vice versa. (I generally add co-authors because these tend to be the most durable friendships that academics make.) My webpage is locked down (like those for the rest of our household) so that you don’t see much on my page unless I’m your friend.

So if I post something on Facebook that is only seen by my Facebook friends, is that really public advocacy? Yes, 82 is more than 5-10 friends on a night out, but it still seems analogous to talking in a bar or a poker party among a limited number of close friends. (Or certainly the annual Christmas letter). And is it right (or realistic) to ask our Armed Forces to give up having opinions or sharing them privately with their friends?

I’m not saying that such a policy would help Sgt. Stein. Although he doesn’t identify himself as a military member, it doesn’t appear that Gary Stein has limited his Facebook thoughts to only close friends, or his political commentary to non-partisan advocacy.

Unfortunately, bad facts make bad law: if we had a less polarizing president, it might be possible to debate the best policy without having the opinions so intimately tied to one controversial serviceman and his political criticisms. However, we haven’t had such a president this century — and maybe not since the 1950s — so that window may not open any time in the foreseeable future.

Tuesday, April 3, 2012

Creative destruction creates carcasses

Veteran tech journalist Therese Poletti this morning looks at the tough choices facing the new(ish) CEOs of three established tech companies. The double-deck headline in Marketwatch says it all:

April 3, 2012, 12:01 a.m. EDT
Can new CEOs fix H-P, RIM and Yahoo?
Commentary: H-P has best hopes, future grimmer for RIM and Yahoo
She begins the story by quoting Clay Christensen from his talk last week at Xerox PARC — a nice touch and obviously a point of view I wholeheartedly endorse.

But then she gets to the money quote:
Once companies have lost their edge, can they ever climb back? In the case of H-P, RIM and Yahoo, the outlook appears to be the best for H-P, worse for RIM, and Yahoo could eventually just be sold, or cut up into bits.

“They have moved to the carcass phase of the business,” said Stephen Diamond, an associate professor of law at Santa Clara University. “That is a very bad sign. That is very interesting for lawyers and vulture funds. But to expect those companies to turn around technologically is all but impossible. H-P may have narrowly averted that,” he said, adding that he believes the tech giant needs to eventually find a more visionary CEO with more tech or engineering creds, or it too will lose its way.
Carcasses? Ouch!

The pessimism on Yahoo seems conventional wisdom. Yahoo was listed among “four dying companies” over three years ago, and the other three have essentially been carved up: Palm bought and essentially killed by HP, Sun swallowed up by Oracle for its patent portfolio, and AMD making a bold (i.e. risky) shift to a fabless/outsourcing model.

Meanwhile, the travails of RIM and HP have been well chronicled. All three companies are at a point — as Apple was in the mid-1990s — where their troubles are so great that they have trouble attracting a top tier CEO. In offering the most optimistic view of HP, Poletti sees CEO Meg Whitman as a savvy corporate politician and transitional figure, who sets the ship aright but then turns to the reins over to a technologist (possibly inside) leader.

This plays to a conjecture I’ve been trying to nail down for my book on engineering entrepreneurship: great technology companies have to be led by great technologists. (Steve Jobs might be an exception to this rule, but he was an exception to nearly every rule).

Still, these are companies that have hit a difficult time, having lost (or in the process of losing) their once certain moneymaking franchise to commoditization and other market turmoil created by creative destruction. As Prof. Christensen notes, this is the inevitable way of the technology-enabled world.

Sunday, April 1, 2012

URL Shortening Solutions Act

Quoted without comment from the Puffington Host:

WASHINGTON (April 1): To protect the burgeoning social media industry, House Democrats are proposing regulation to head off an impending shortage of shortened URLs.

Their new legislation, the "URL Shortening Solutions Act of 2012” would impose a tax of 1¢ per 10,000 shortened URLs on providers of URL shortening services used by Twitter, Facebook and other social media sites to facilitate the sharing of web addresses.

The measure is co-sponsored by more than 40 members of the Congressional Internet Caucus. Other provisions in the 231-page bill would include funds for social media research and education, and also transfer payments to fund social media services for those disadvantaged due to socio-economic status.

The legislation was applauded by academic economists who saw the move as an imaginative approach to correct market failure. “It addresses a tragedy of the commons that would otherwise reduce the availability of crucial Web 2.0 services for American consumers,” said Dr. Gno Sentz, an assistant professor of economics at U. Mass. Amherst. “At the same time, it helps maintain the US lead in social media, which is crucial for our competitiveness in information technologies.”

The measure faces an uncertain future in the House. It drew cautious support from Rep. Greg Walden (R-OR), chair of the Subcommittee on Communications and Technology, a member of the Internet Caucus who had not committed to supporting the bill. However, other Republicans were expected to oppose the measure due to pressure from Tea Party and other anti-government activists.

If the House legislation failed, the Administration was considering implementing a similar measure via executive order. Aides to Commerce Secretary John Bryson said that no immediate action was likely on an initiative that opponents would likely to demonize as a “tax increase,” but predicted that the executive branch would have “more flexibility” after the November 6 presidential election.