Apple’s Future Is Bleak, According to This Legendary Hedge Fund Manager

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Hedge fund legend Julian Robertson, once a staunch supporter of Apple (NASDAQ: AAPL  ) , sold his stake in the company earlier this year. In a recent interview with CNBC, he explained that he sold the stock after coming to the realization that Steve Jobs was a "really awful person."

Robertson's argument is more or less an extension of a criticism that has plagued Apple for years now -- the idea that the company was entirely dependent on Jobs' leadership. But it raises a more interesting question: Should investors look to management when picking stocks?

Robertson doesn't think Jobs was capable of building a lasting organization
Robertson wasn't always an Apple bear. Back in 2010, he was one of the company's most vocal proponents, going so far as to call Apple "maybe the greatest company in the world," and arguing that its then-20 price-to-earnings ratio was justified.

Robertson claims he would own Apple stock today if Jobs were still leading the company. While Jobs was in charge, Apple created a number of revolutionary products: the iPod, iPhone, and iPad. But since Tim Cook has taken the reigns, innovation has stalled. Under Cook's leadership, Apple has released only a single new product -- the iPad Mini -- and even that is merely a slightly smaller version of an already existing device.

As an executive, Jobs was famously abrasive. In his biography, Walter Issacson describes a man who was prone to temper tantrums, publicly humiliated his subordinates, and was an obsessive micro-manager. Robertson believes these qualities make it unlikely that Jobs could've built an organization that would survive over the long-haul.

Robertson favors Google, Apple's big competitor 
Instead of Apple, Robertson prefers the company's rival, Google (NASDAQ: GOOGL  ) . Specifically, Robertson is a big fan of Google's Chairman and former Chief Executive Eric Schmidt.

In contrast to Jobs' notorious micro-managing, Schmidt fostered an independent environment at Google, one where engineers were free to work in their own way. At a McKinsey conference in 2011, Schmidt explained how Google went about the hiring process, noting that the company valued employees that could work with little supervision (via Gigaom):

People are going to do what they are going to do, and you're there to assist them. They don't need me, they are going to do it anyway. They are going to do it for their whole lives. Maybe they could use a little help from me. At Google, we give the impression of not managing the company because we don't really. It sort of has its own Borg-like quality if you will. [Google] sort of just moves forward.

What Schmidt didn't address, but Forbes contributor Eric Jackson uncovered, is the importance of pedigree at Google. Among Google's top executives, nearly all of them have flawless resumes -- they're Ivy League graduates, Ph.D.s, and Rhodes Scholars. In contrast, most of Apple's top executives have relatively ho-hum backgrounds; lesser-known schools, fewer academic accomplishments.

Netflix: Great managers and the hindsight bias
I can't argue with Robertson's track record, but I take issue with the notion of basing investment decisions on management philosophy. A great executive can absolutely make all the difference to a company -- but how is it possible to know which executives are great beforehand?

In psychology, "hindsight bias" is the tendency people have to view outcomes in the present as having been predictable in the past. Steve Jobs may be seen as a genius today, but who knew that back in 1985? Certainly not Apple's board; otherwise, they never would've fired him.

Consider Netflix's (NASDAQ: NFLX  ) Reed Hastings. Today, with Netflix's stock back at multi-year highs, he's lauded as a genius, and a dark horse contender for Microsoft's next CEO. Going back a bit further, in 2010, Hastings was named Fortune's Businessperson of the year, credited with revolutionizing the movie business and turning Netflix into a household name.

But 2011 was not a good year for Netflix's Hastings. Following the Qwikster debacle, Netflix's stop plummeted more than 70% in just a few months -- from a high near $300 to a low around $60 per share. Hastings himself lost over $300 million during Netflix's collapse.

Netflix's stumble led Tuck Professor Syd Finkelstein to dub him the worst CEO of 2011, ahead of other infamous tech executives including BlackBerry's Mike Lazaridis and Jim Balsillie and Hewlett-Packard's Leo Apotheker.

Should you factor management into investment decisions?
It's hard to argue with someone as legendary as Julian Robertson, but I don't think investors should consider management when picking stocks.

Ultimately, a given executive's skills are only evaluated in hindsight, based on their results, and are not easily predictable beforehand. As Netflix's Reed Hastings shows, a given executive can go from genius to bum and back to genius in just a few months based on nothing more than short-term market swings.

Robertson might be right about Apple -- at this point, the stock could be dead money. But investors shouldn't factor in Steve Jobs' legacy when making a decision.

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Read/Post Comments (9) | Recommend This Article (0)

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 October 12, 2013, at 1:55 PM, RadarTheKat wrote:

    Legendary hedge fund managers have been known to fall from grace too. The world continues to soak up every iPhone Apple can produce. Is it better to capture limited consumer dollars with a high margin product or to shift some of those dollars to a lower margin new product? I say Apple is managing its business and product line just fine and will introduce a new product category when the timing is optimal to doing so, like perhaps, when the economy improves and there's more discretionary income available to soak up quantities of the new product with consumers having to direct money away from other Apple products.

  • Report this Comment On October 12, 2013, at 2:08 PM, larryw101 wrote:

    No matter what Apple does, this author, Sam M. will always find a way to bash Apple. I call him Sam, Sam, the Apple Bashing Man. Every one of his Apple articles bashes the stock in one way or another.

    He has been wrong over 90% of the time on his predictions regarding Apple. He said Apple was going back below $400 not too long ago.

    Motley Fool has some real jokers on here as so-called contributors.

  • Report this Comment On October 12, 2013, at 2:22 PM, ryanchandler25 wrote:

    "Robertson believes these qualities make it unlikely that Jobs could've built an organization that would survive over the long-haul."

    What? Apple has been in business since 1976. Jobs brought them back from the brink of bankruptcy in the 1990s. How much more long term can you get? How many hedge funds can claim that they have been in business for nearly 40 years?

    Then Sam says, "It's hard to argue with someone as legendary as Julian Robertson, but I don't think investors should consider management when picking stocks."

    What Sam? That statement makes no sense whatsoever. A stock holder is an owner in the company, It's like if you were going to buy a business in your town. Of course you would look at the management and how capable they are. Nothing about investing is easily predictable before hand. Often forecasts, estimates, and projections aren't worth the paper they are printed on.

  • Report this Comment On October 12, 2013, at 2:49 PM, Mathman6577 wrote:

    I'm really getting tired of all the Apple bashers and bears. Tell me what is wrong with a company that made over $36B last year and has $150B in cash ?

    How much did Amazon make? How much cash ?

  • Report this Comment On October 12, 2013, at 4:37 PM, JackBaker1 wrote:

    Misleading Headline. Julian did not say that "Apple's future is bleak." He said he though Jobs was a "mean guy" and that is why he sold. he also said that if the "mean guy" were still alive and running the company that he would still own it. Welcome to the world of dementia, Julian.

  • Report this Comment On October 12, 2013, at 5:18 PM, tkell31 wrote:

    Julian's fund went from 23 billion to 6 billion in two years so consider the source.

  • Report this Comment On October 13, 2013, at 10:14 PM, Sabrfan30 wrote:

    I have the I-phone 5 that I'm using right now. I also own a Samsung Galaxy S-3 & a Droid. Therefore I'm NOT going to lie about any of these phones because I love all of them. As for Apple. There is writing all over the wall. The author of this article may like bashing Apple; but in this case he isn't by himself. There are people that work for Apple that have been talking about Apple's woes for awhile now. There will NEVER be another Steve Jobs. He had so many visions when it came to the making of the I-phone. The last I-phone he had anything to do with the making of was the I-phone 5. Apple suffered a loss in the last 2 quarters. 1st time this has happened since the 1st day Steve Jobs was over Apple. And with the 5-c & the 5-s you can go ahead & mark them down for a 3rd quarter loss. I have read a couple of articles from sources that work closely with Apple. But even they knew these two I-phones should have NEVER hit the shelves. They said all of their time & energy; along with new & fresh ideas should have been put on the all new I-phone 6. The 5-c isn't worth talking about at all. And the supposedly higher end 5-S was marked with problems before it was even released. Not only the "Screen of Death" problem plagues the 5-s. And Apple was wrong in writing so many articles telling Apple fans to skip the I-phone 5 & wait for the 5-S. Especially when they knew there were problems. But it's back-fired on them. Because neither phone has met the sales mark they not only wanted but NEEDED. I'm an I-phone fan & I hate this. But this is a company that knew they NEEDED something big to keep up with Samsung. They should have waited & put EVERYTHING they had into the I-phone 6. But they decided to gamble & now they are paying for it. But I believe Apple has learned from this because they are having to drop the costs of both phones dramatically & they are also having to eat many phones they won't even be able to sell. But no-one should be so quick to just count this BIG GIANT out. Because Apple will be right back on top with Samsung. And I believe they will do it with the NEW I-Phone 6. BOTTOM LINE!!!

  • Report this Comment On October 14, 2013, at 12:48 AM, TMFMattera wrote:

    Thanks for the comments, guys.

    This wasn't intended to be a negative Apple article, and I don't think it is. It's only negative in so far as Robertson has decided to abandon his position, something that I was analyzing but not endorsing.

    I don't think investors should take the personality of management into consideration when picking stocks. It's something Robertson obviously ascribes to, but it seems to me like management is always judged post-hoc.

  • Report this Comment On October 14, 2013, at 9:23 AM, Mathman6577 wrote:

    My point is if any writer is going t o write only about Apple's "woes" let's see some articles a out other companies as well. I never see anything written about Samsung or Amazon in the same context -- let's see some hard analysis about a company that actually lost money.

    And regarding management one of the MF's big analysis parameters is management effectiveness. So it should be perfectly relevant to consider management when looking at a stock. However, the opinion of a hedge fund manager who is actually losing his client's money should not be a consideration at all.

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