I'm going to attempt something a little odd today, Fools. Even though Apple (NASDAQ:AAPL) makes up 6.2% of my real-life holdings, and I recently considered buying shares of Apple stock, I'm going to be giving you two reasons to consider selling shares of the company today.
Why am I doing this?
Recently, Nobel Prize winner Daniel Kahneman visited Fool headquarters in Virginia. While visiting, he talked about how a number of different biases can lead us to believe we can predict the future with relative certainty. In reality, he argued, we're just deluding ourselves.
It got me to thinking about how I don't write enough about the risks of owning the stocks I own. So, although I don't plan on selling my Apple stock anytime soon, I think it's healthy for me to practice and model this behavior.
1. No sustainable competitive advantages
Anyone who has watched Apple's remarkable comeback from near bankruptcy over a decade ago would argue that Apple has tons of competitive advantages. But the key word here is sustainable. In other words, what might Apple have going for it -- that others don't -- that will likely remain for years to come?
When I look at Apple's competition, I see lots of sustainable competitive advantages. Google (NASDAQ:GOOGL) has such a wide moat through the ubiquity of its search engine, which is bolstered by the global dominance of the Android operating system, that Charlie Munger once said, "Google has a huge new moat. I've probably never seen such a moat."
As Amazon.com (NASDAQ:AMZN) has grown, it has become a one-stop-shop for e-commerce. That network effect, combined with the buildout of wildly expensive -- but equally important -- fulfillment centers has made it virtually impossible for another company to offer the value proposition Amazon has
Even Microsoft (NASDAQ:MSFT) has the protective moat of its ubiquitous Office Suite. In 2012, 31% of Microsoft's revenue came from people buying access to use Microsoft Word, PowerPoint, Excel, and the rest of the products in the Suite. The necessity of these products isn't going anywhere anytime soon.
Apple simply doesn't have this type of advantage. The growth of the iEmpire was based upon continually out-innovating the competition, whether through the iPod, the iPhone, or the iPad.
The sustainable advantages that Google, Amazon, and Microsoft have are incredibly important. While Apple innovates new products, these three can come along and create knock-off versions -- like the Nexus, Kindle Fire, or Surface tablets, respectively. The tablets can be offered for less than Apple charges because all three companies have money coming in from other sources, and those sources have sustainable advantages.
That means that all Apple is left with is innovation. While that innovation has been beyond impressive, there's nothing sustainable -- like a search engine, network of fulfillment centers, or a popular Office Suite -- to let investors know that this advantage will be around for the next decade.
Which brings me to my second point:
2. Where's the innovation?
Apple has spoiled us over the past decade. The company had rollout after rollout of new or significantly upgraded products from 2001 to 2012, and Apple stock's rise (eventually) followed suit.
But since the death of Steve Jobs, it's been difficult to pin down whether the brilliance in innovation was due to one man, or if it had become something institutional.
I think the website Ad Contrarian has one of the most interesting views of how to tell if the innovative genius is still there. In it, the author contends that the quality of ads are a tell as to how the company is fairing:
The product pipeline will take years to screw up. But the ad pipeline can be screwed up in no time...the "ad pipeline" is now officially screwed up. Apple has two problems. First is that they have nothing to talk about. They haven't produced anything of major interest to consumers in a long time. Second, they have lost their voice. They no longer know who they are. And neither do we.
How can Apple fix this?
In the end, there's only one way Apple can fix this: by proving that they're innovative. At today's prices, I'm willing to stick around and see if the magic is still there.
But to prove themselves, Apple is going to have to do something that's rarely attempted, and even more rarely successful: cannibalize its best sellers.
Fool contributor Brian Stoffel owns shares of Apple, Google, and Amazon.com. The Motley Fool recommends Amazon.com, Apple, Facebook, and Google. The Motley Fool owns shares of Amazon.com, Apple, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.