Steve Jobs shows off the white iPhone 4 at the 2010 Worldwide Developers Conference
Steve Jobs employed a number of master strategies to make Apple the company it is today. Slowly Apple has been abandoning Jobs’ strategies that had made Apple successful. Steve Jobs was a master of a strategy known as UPOD. UPOD stands for under promise and over deliver. Now Apple has officially announced that it is abandoning UPOD.
A very long time ago, I learned the hard way how Steve Jobs masterfully employed UPOD. I was listening to him on an earnings conference call. My finger was on the trigger to buy Apple or short it for a very short-term trade based on its earnings projections.
The concept was that I would buy if the projections were higher than the whisper numbers or I would short if the projections were lower than the whisper numbers.
In the latter part of the conference call, Apple gave its guidance for the next quarter; the guidance was significantly below the whisper numbers. Within a few milliseconds, I had short sold a very large quantity of Apple stock. To my dismay, right after my shorts filled, Apple started moving up strongly. Fortunately I had stops. Stops hit and I lost a fair amount of money. If I did not have stops, and left the trade for a week my losses would have been about 1,500% higher.
For over 30 years, my habit has been to carefully analyze every trade especially if I lost money. The purpose of the analysis is to learn from the mistake. As I went back and analyzed the tick trading data, to my surprise there were significant institutional buying within milliseconds of Apple’s lower guidance. The institutional buying continued for the next week. This was before the days of my development of computer algorithms to analyze the tick data in real time to alert me. If at that time I had the algorithms I have now, I probably would not have even entered the trade on the short side as my algorithms would have warned me of the institutional buying promptly.
Here is what happened. Institutions were a lot smarter than I was. They had figured out that Jobs used UPOD. As soon as the lower earnings guidance was announced, institutions knew Apple was sandbagging. Institutions were prepared to add certain numbers to Apple’s guidance to come up with their own projections. Such modified projections were better than the whisper numbers. Armed with this information institutions had a perfect reason to aggressively buy Apple.
As is usually the case, money was taken by more informed investors from less informed investors like me at that time.
For me there was a surprise in Apple’s earnings conference call yesterday. Apple CFO Peter Oppenheimer said,
In the past we provided a single point estimate that was conservative. This quarter and going forward, we are going to provide a range of guidance that we're likely to report within.
Oppenheimer did not explain why the change was being made. In any case it is official – Apple is abandoning another one of Steve Jobs’ strategies. Jobs was known for low balling the guidance and then blowing it away three months later. For other Jobs’ strategies that Apple is abandoning, please see Hard To Imagine Steve Jobs Running Apple This Way.
About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me: Nigam@TheAroraReport.com. Follow me here. Subscribers to The Arora Report are long Apple from $131 and have already taken partial profits on 90% of the position.
