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: GOOG ) . 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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