Why I Won't Be Selling Apple

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I've taken a beating for daring to challenge Apple's (Nasdaq: AAPL  ) board of directors and its decision to keep quiet about CEO Steve Jobs' liver transplant. So be it. I still believe the board failed to disclose a material event.

Very few of you agree. Instead, you seem to think I should shut up and be happy with my generous gains. If only I expected less.

A better ending to this saga
Your comments, many bristling with righteous anger, delivered a machine-gun litany of counterarguments designed to put me in my place:

The End Justifies the Means! But of course, it doesn't -- not in life, nor in stocks. Does the following statement from Jobs, given in January, suggest to you in any way that he might be facing an illness so serious that within months, he'd need a liver transplant?

Unfortunately, the curiosity over my personal health continues to be a distraction not only for me and my family, but everyone else at Apple as well. In addition, during the past week I have learned that my health-related issues are more complex than I originally thought.

If the answer is "no," then didn't the board have an obligation to disclose, especially when research says that roughly one in four patients who need a liver transplant dies before receiving one?

The Apple that (gulp) could have been
Raise your hand if you'd still be holding shares of Apple right now, were Jobs no longer with us. No doubt many of you still would be, but I'd bet good money that a number of you wouldn't. The board knows this, too. That's why you'll find a definite warning on page 21 of Apple's latest 10-K annual report.

"Much of the Company's future success depends on the continued service and availability of skilled personnel, including its CEO, its executive team and key employees in technical, marketing and staff positions," the document reads. [Emphasis mine.]

For comparison's sake, neither Microsoft (Nasdaq: MSFT  ) nor Hewlett-Packard (NYSE: HPQ  ) nor even Dell (Nasdaq: DELL  ) refers to its chief executive so pointedly. Jobs is that different, that important, that material.

Very few CEOs stand on a similar pedestal. One of the few who does criticized Apple on CNBC last week: Berkshire Hathaway's (NYSE: BRK-A  ) Warren Buffett.

On page 18 of Berkshire's 10-K, also under risk factors, the company's disclosure reads: 

"Investment decisions and all major capital allocation decisions are made for Berkshire's businesses by Warren E. Buffett, Chairman of the Board of Directors and CEO, age 78, in consultation with Charles T. Munger, Vice Chairman of the Board of Directors, age 85. If for any reason the services of Berkshire's key personnel, particularly Mr. Buffett, were to become unavailable to Berkshire, there could be a material adverse effect on the Company."

A taut, fine line
Losing Jobs would hurt Apple, just as losing Buffett would hurt Berkshire. Yet one commenter to my original story about this raises a perfectly good and perhaps irrefutable point.

"The company and the SEC have no right to the disclosure of Steven Jobs' medical history," wrote Foolish reader Puffin100. "There is a more important law in this matter called HIPAA, that protects our right to medical privacy." 

Fair enough. One of our own Foolish attorneys, when asked about this, said in an email that she thinks there's definitely a tension or conflict between HIPAA and Regulation FD, the securities law that defines disclosure requirements. The SEC doesn't specify just how much information a company must disclose about its executives' health.

Moreover, the SEC has a checkered history when it comes to prosecuting cases involving Regulation FD. Schering-Plough (NYSE: SGP  ) paid $1 million in fines in 2003 after its investor-relations chief was accused of selectively disclosing negative, non-public material information.

But the agency also chose not to take action against John Mackey, the CEO of Whole Foods Market (Nasdaq: WFMI  ) . In 2007, Mackey was found to have been making disparaging comments about Wild Oats Market, a rival he later acquired, under a pseudonym on a Yahoo! Finance discussion board.

Long live my Apple shares
So perhaps your cockeyed stares are well-deserved. I'm nonetheless standing by my story. I'm also standing by the stock.

The end doesn't justify the means, but it also doesn't justify a sale. The board's actions, while deplorable, have no impact on product strategy -- a strategy I still believe in as a shareholder. And let's be honest: My criticisms matter more if I'm an Apple shareholder, an owner with skin in the game, than if I'm merely an observer. I have a vested interest in seeing the people on Apple's board get disclosure right.

They haven't yet. I'll keep writing, and keep holding, in hopes that they do.

Get your clicks with related Foolishness:

Apple, Berkshire Hathaway, and Whole Foods Market are Stock Advisor selections. Berkshire, Dell, and Microsoft are Inside Value picks. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers had stock and options positions in Apple and Google a stock position in Berkshire at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool also owns shares of Berkshire and is on Twitter as @TheMotleyFool. Its disclosure policy will testify if granted immunity.

Read/Post Comments (12) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 30, 2009, at 12:59 PM, plange01 wrote:

    there are now plenty of smart phones on the market and they are all about the one has a edge in the market now....

  • Report this Comment On June 30, 2009, at 1:19 PM, srpfool wrote:

    There are now plenty of smart phones on the market and they are all about the one has a edge in the market now....

    Yeah that's true really. It's a bit like cars also. No way Toyota is a better investment than, say, general motors.

  • Report this Comment On June 30, 2009, at 2:08 PM, srun wrote:

    I couldn't agree more with this article. The fact remains that Jobs IS material. Thankfully he's still around. Conversely, there's much MUCH more to Apple than just Jobs. Once people start realizing that ONE person isn't behind the iPhone, the iPod, the App Store and iTunes will we have the wherewithal to hold on to our precious Apple shares before they soon will dominate the market in both portable music players and smartphone's. Analysts told us to sell late last year, analysts are telling us to buy right now... Analysts don't know sh*t. Stick to your guns. Walk down the street in any major city and count how many white earbuds you see. That's how many reasons you have not to sell AAPL.

  • Report this Comment On June 30, 2009, at 2:13 PM, neal157 wrote:

    The real issue to me is all the confusion surrounding Jobs' original cancer. Most readers were under the impression that it was the common type that is very hard to survive. The rare type that Mr. Jobs has followed a very predictable course: it is treated surgically, but returns a few years later in the liver. A transplant is standard procedure at this point and typically leads to decades more of productive life. Apple's disclosures did not assume the worst-case outcome, nor did they need to. Why create an irrational panic selloff over a situation that could most likely end well. And who will ever know how the diagnosis evolved. It can take batteries of complex testing to determine the extent of any disease. Every step of the way, doctors encourage the most hopeful outlook on the part of the patient.

  • Report this Comment On June 30, 2009, at 4:56 PM, Nick5454 wrote:

    One fact is why does the company go down the tubes when jobs is gone. If he didn't come back there would never have been an iPhone that saved apple.

    The main fact that remains is that apple tries monopolize thier market, which is why the mac market

    was in dire straights in the first place.

    Now he forms a joint monopoly with AT&T. Thousands of users cannot purchase the new iPhone. And nothing is being done, except users are jumping to palm because of the frustration.

    Long story short his business policies will destroy apple in the end, unless they keep innovating better than anyone and he does. And the user experience is the absolute best.

    And nothing is better than the iPhone.

  • Report this Comment On June 30, 2009, at 11:42 PM, RipRagge wrote:

    Dear Tim,

    You're the star on my blog tonight. I found the above assault of adjectives on weak helpless verbs to be worthy of ridicule.

    So much emotion. So little meaning.

    There are laws. If Apple is breaking the laws, enforcement is in order. If not, there either is no problem or the laws need to be changed. Write a letter to your senator.

    This screed against Apple by a shareholder is absurd on so many levels it defies description in a comment box.

  • Report this Comment On July 01, 2009, at 1:44 PM, ScottRichard wrote:


    I appreciate your voice in pressing for transparency in corporate affairs.

    Regarding your statement, "Raise your hand if you'd still be holding shares of Apple right now, were Jobs no longer with us", I have my hand raised.

    While I wish Jobs good health, in the event there is a recurring health problem, I think Apple has nurtured a skilled team to take over the helm and continue the same innovation that we have enjoyed under Jobs.

  • Report this Comment On July 02, 2009, at 4:09 PM, GreyedOut wrote:

    I think the right to privacy trumps FD; however, that puts the Board in a position of how much to disclose and saying "more complex" was too weak. In my opinon saying he was seriously ill with a 1 in 4 chance of survival would have given sufficient notice. (It that was indeed the case)

    I think the Board needs to reconsider the importance of Jobs and the 10-k report. While he is important I don't think he is that important. I don't think the comparison of him to Buffett is apples to apples as their businesses are vastly different.

    I am certainly glad that Jobs is doing well and I think in the longer term this will prove good for the company.

    I too, own shares in Apple and remain convinced it will be good in the long run.

  • Report this Comment On July 02, 2009, at 4:36 PM, rif wrote:


    Nice article.

    I agree with you (and Buffett) that Apple failed to disclose a material fact. Frankly, I can't understand how this can be disputed.

    But your point about HIPAA is the key. The tension you referenced between HIPAA and FD is what makes this issue such a tough call, and the existence of HIPAA is what earns the Apple BOD a mulligan in this case.

    RipRagge, if you were implying that shareholders of successful companies should not express their displeasure with corporate/BOD actions, I respectfully have to disagree.

    Long AAPL. Love the company. Love Steve Jobs. Giving the BOD a mulligan.

  • Report this Comment On July 02, 2009, at 8:41 PM, Gigipete wrote:

    The title of the article promised "Why I Won't Be Selling Apple." Sadly, it's just a personal ego trip rationale rehashing your previous position on disclosing Jobs' medical history.

  • Report this Comment On July 03, 2009, at 3:51 AM, Rg2scribe wrote:

    It's rather scary when one person becomes synonymous with a company's historical and future success, no matter his/her larger-than-life persona or perceived genius.

    Fact is, businesses are built to be immortal. It bears repeating: Businesses are built to be immortal. Not its leaders or its people.

    Were Jobs to've passed and the stock freefall and the innovation for which Apple is so revered waned, that then speaks volumes about the company's talent-assessing and -attracting acumen and the viability of its 5-, 10-, 20-year plan.

    Apple, some years ago, had lost its way and it took Jobs to come back and right the ship--a yeoman's job he did indeed. But everyone reaches his or her nadir at some point and then they can be hallowed via legacy.

    Ford Motor is now experiencing something of a renaissance. But recently Ford was on her knees. Bill Ford (heir in name) tried his hand--didn't work. They brought in Boeing's Alan Mulally and now Ford is mounting an impressive comeback.

    Again, the people demise, but the company is built to be immortal . . . via fresh brains, imagination, cognition, vision, sweat, etc.

    As much as I admire Apple and Jobs, I know that they are not immune to value, innovation, and talent migration.

    I've sold much of my Apple stock and placed it in Palm. Because Palm is where Apple was at one time and competition is an everyone-wins game.

    Jobs's legacy is indeed secured and he still has much to give. But be wary an emotional attachment to him. Other industry talent has begun to spread its wings, and will continue to because that's the nature of innovation/technology.

    So invest unemotionally, prudently, and don't becomed blinded by any particular CEO, no matter how successful.

    There's always someone(s) waiting in the wings. And the skies are a big place. Plenty of "airspace" for competition.

  • Report this Comment On July 03, 2009, at 11:21 AM, jksIII wrote:

    I bought Apple stock before the iphone. It has been very good to me. I bought it because Steve Jobs was coming back, and I thought the company had potential under his direction. That being said, he is not the company, only its foundation, and I believe Apple has the basis to continue without him at this point. I don't agree that the company or its directors are or should be required to provide information on his health. I'm a physician, and I take care of people who have liver disease and transplants, most of whom live through their illness and the post-transplant period. It's none of your business. Invest based on what you can find out about the company and its financial health, and, as always, caveat emptor.

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