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No. of Recommendations: 6
Apple's management and employees are doing a great job of producing quality, innovative products and have made remarkable progress in the uphill battle of winning over new users and new markets. Progress in expanding the customer base has been slow, but it is clearly visible to anyone who takes a close look.

In my mind, the biggest questions from from a investment standpoint relate to how much of Apple's profits are likely to trickle down to investors and how much will be syphoned off by management with the help of the board of directors. Outside of the investment related gains that came thanks to the raging bull market, pretty much all of Apple's reported profits were transfered to top managers in the form of huge options grants and Steve's $90 million bonus.

Any investor doing his due diligence has to ask himself if this pattern of compensation is likely to continue. If it is, there is no guarantee that any amount of increased revenues and profits will result in any real gain for investors.

I doubt anyone on the planet has spent more time than I have in trying to figure out how Fred Anderson and Steve Jobs intend to treat shareholders going forward. I still can't answer for sure:

1. Is management solely out to make profits for themselves at the expense of shareholders?

2. Have past compensation policies been well intended, but nevertheless the result of flawed logic and a biased perspective that have served to transfer too large a percentage of the rewards of Apple's successes to managers at the expense of shareholders?

3. Have Apple's compensation policies actually been appropriate, and would lower levels of compensation actually hurt the company, by causing essential employees to leave the company?

There are some people on this board who firmly believe that the answer to either #1 is yes, and others who firmly believe the answer to #3 is yes. I think anyone who has total confidence in either of those extreme positions has been ignoring significant evidence contrary to their point of view. I personally subscribe to #2 as the most likely scenario, and have taken it upon myself to try and add some aditional perspective to Apple's decision making process.

In response to the Falcon's origional question" "What will it take to get Apple stock moving again?"

I think that restoring investors' faith and confidence in managment's dedication to creating shareholder value is the key to boosting the value of Apple stock. The main steps toward doing this are:

1. Adding new Directors who will demonstrate that they are protecting the shareholder's interests.
2. Dramatically reduce the size of executive options grants.
3. Begin returning a significant percentage of positive cash flows to shareholders in the form of share repurchases.
4. Do all of these things and more in a much more open and consistent manner.

If we keep writing to and keep drilling on these issues, we will have some impact. I believe we already have, for that matter. Since I met with the CFO on 1/23/03, Apple is up 4.8%. The Nasdaq is down 3.9% over the same period, which makes for a solid 8.7% divergence in less than a month. One possible explanation is that the company has finally started buying back some stock and hopes to have investors in a better mood for the meeting in April.


Link back to my old meeting summary:

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