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The one where I offer stock tips

Let’s say I offered you the option to invest in a monopoly or in a hit-driven company whose survival depends on always finding the next big thing? Which would you invest in?

Before you answer, let’s say I offered you the option to invest in a person who has a large inheritance or a person who is poor but is hustling for any opportunity. Whom would you invest in?

Before you answer, let’s say I offered you the option to invest in real estate of a city which depends on a stable, capital-intensive manufacturing base or one where they make nothing but movies. Where would you buy land?

Each of these reflect the same choice: stability vs. instability, the known vs. the unknown.

Historically, capital has always gone toward the stable and away from the unstable. Wealth has gone the other way.

Onward.

 

  • Julian Ozen

    This seems like disingenuous advice. Sure wealth flows in one direciton, but so does loss

    • Paul Franceus

      Hi- Loss occurs on both sides of those comparisons. Monopoly (MSFT) hasn’t been all that great for investors since 2000 compared to AAPL, and real estate in say, Detroit has been a disaster too certainly compared to Los Angeles.

    • Walt French

      Rule of thumb is that investing in the market pays out over time. More than holding “safe” bonds that today probably don’t cover inflation. (Kind of a “duh,” because why else—besides boasting over drinks—invest in risky stocks?)

      And also that leveraging — whether by buying on margin or buying companies whose success is leveraged through its business or debt/equity or whatever — pays out proportionately more. Yes, ups and downs are leveraged, too, but if you have a 25-year horizon and/or a diversified portfolio, on average stocks leveraged to the market (not, as I note above, merely riskier), should enjoy more of that market return.

      Index investors are quite happy with a well-diversified market return. More of it, if you can tolerate the risk, is even nicer.

  • rationalchrist

    BBRY all time high July 20, 2007, all time second high May 30, 2008. iPhone 2 release date June 29, 2007. GOOG all time high today. iOS 9 release date 3Q 2015. Not only business doesn’t see disruption coming, but also so called “investor” or stock buyer.

    • neutrino23

      “doesn’t see disruption coming”
      Well, that is it in a nutshell. There are all sorts of famous stories about established businesses replaced by upstarts. Probably a lot of this is the clarity of hindsight. I’m sure we could also find many stories of innovators trying to make it big who failed. The hard part is to separate the wheat from the chaff in real time. If you are the managers of Blackberry, or Microsoft, or Firestone how do you know in advance that the iPhone will disrupt your business directly or maybe change the market structure, or how do you know if that the radial tires from Europe will upset your business?

      And even if you suspect that what do you do? Maybe Blackberry could have made a different phone if they tried really hard, as soon as possible. But what could MS do? They were structured to focus strongly on institutional buyers, not on consumers. When the market pivoted I think it would have been really hard for them to reinvent themselves.

      My opinion is that MS should have started a spinoff with the intention that it would eventually replace MS. If in ~2005 some sharp marketing guys saw this shift happening they could have poured R&D money and technology into a startup aimed at making consumer devices with a new OS.

      The point of a spinoff is that it is like a seed crystal, the new company grows up with the resources of MS but with its own structure and policies and practices. It would not be burdened by the historic success of Windows. Starting a new structure is much easier than forcing a new format on an existing company.

      • art hackett

        Seeing Apple constantly develops its own spin offs, and the others are too afraid to or just too greedy to risk change, it would seem the answer is clear. Do it yourself, or someone will do it for (to?) you. MS, like the others, fight against anything that might disrupt the business model they believe got them where they are. Unfortunately very few (is it just Apple now?) seem to have any comprehension of how they got there and how to move forward. Dealing with the parasites (shareholders) also seems to be an excuse for the executives and board to drain the enterprise of its blood and future.

  • Sergei

    Most new business ventures fail. I would definitely favor a great inheritance versus an entrepreneurial pauper.

  • Hans

    I think, it´s more important what we unknow rather than we know; what do you think Horace?

    I´d bet for the the next big thing (seeking for a black swan).

  • Walt French

    Wikipedia’s page re CAPM (en.wikipedia • org/wiki/Capital_asset_pricing_model; sorry for the obfuscation; Disqus blacklisted me for using real ones) notes that the idea of higher risk, higher returns was quantified over 50 years ago, and earned Nobel recognition 25 years ago.

    Importantly, it’s not just ANY risk that on average pays out, it’s risk that is in proportion to all stocks’ risks. Risk that an individual company’s share of a market will double or halve? It may work out, or it might not. Leverage to earnings going up or down at a multiple of the market’s? Bring it on! This is a widely misunderstood application of the model and a key reason that many mistakenly reject it.

    As the article notes, the model has — as ALL models have — many flaws, but it remains popular for analyzing portfolios of stocks. Individual stocks have so much idiosyncratic content—as last night’s response shows—that its workings may be hard to see. The effect is there to see, however: take a cross-section of stocks’ daily % changes and see the correlation to a shortly-later day’s % returns.

    I don’t have access to the huge databases I used to, but will note that as of a couple of years ago, Apple was interesting for its HUGE idiosyncratic movements despite a relatively modest leverage (“beta” to the market, only just over 1.0). Back in the bad old days, Apple had a beta well over 2.0; any good news on the economy for stocks meant it was much more likely to survive, while a slowdown significantly raised the risk of implosion; its idiosyncratic movement was commensurate with its market-related uncertainty.

    After watching this for years, the question remains as to whether this is just the nature of Apple, that it so consciously tries to do things that others don’t see as viable, and ANYBODY outside the walls would be uncertain about say, how much Apple’s long-term success will be dependent on e.g., the Watch or a generic IoT that anybody can capitalize on w/o an Apple gizmo. Or whether it’s investors’ persistent misunderstanding of the company’s MO, as I see implied in most posts at sites such as this one. Occam’s Razor hates “Well, Apple is just different” type explanations.

    I resolve that by noting that Apple’s successes have a strong communality to them, that the method of tackling a JTBD has been fabulously successful and could be for others until nearly everybody did it, too. “Risk” is merely a question of the rate at which Apple can churn out JTBD discovery/invention* in the near future. I think I vote with Horace that the answer is so obviously “full speed ahead!” that we wonder who asks the question.

    *Yes, Apple invents JTBDs. People understand a need only after Apple shows it.

    • orienteer

      JTBD?

      • Walt French

        Job To Be Done, a key way to understand why consumers buy a service/product. I.e., I need a drill not to make holes, but to put up shelves.

      • orienteer

        Ah, yes, JBTD. Didn’t recognize it in casual clothes.

  • GlennC777

    “Historically, capital has always gone toward the stable and away from the unstable. Wealth has gone the other way.”

    I have to question whether the second half of that is actually true. My observation has always been that wealth seems to flow towards the stable, which is why huge state-endorsed enterprises of all kinds tend to flourish and why conditions such as feudalism and oligarchy tend to result in instances where there is no system in place to temper the consolidation of power and wealth into fewer and fewer hands.

    I do agree that it is desirable for the opposite to happen, for wealth to flow towards the unstable, because it is from pockets of instability that revolutions of all kinds are born, and my personal thesis for some time now has been that it is the ability of a society to create, tolerate and nurture these pockets of instability that most accurately predicts its success.

    Hence universities, progressive taxation, democracy, freedom of speech and of the press, and a cultural acceptance of novelty and change and a lack of reverence for convention are the real innovations that everything that follows depends on.

  • Bruce_Mc

    “Historically, capital has always gone toward the stable and away from the unstable. Wealth has gone the other way.”

    R > G, according to Thomas Piketty. This means that historically, the rate of return from investments is greater than the overall growth of the economy. There are some people who acquire a lot of wealth by growing the economy. Nearly everyone who already has wealth keeps it by making investments in ongoing enterprises.

    • http://www.asymco.com Horace Dediu

      Piketty is right when it comes to a microcosm of one nation. He’s wrong when the picture is global.

  • David Gonzales

    “Historically, capital has always gone toward the stable and away from the unstable. Wealth has gone the other way.”

    Lots of comments challenging this idea. But if you read “wealth” not as robber-baron-extravagance but rather “abundance of personal value,” then you begin to uncover a different kind of truth – that you don’t chase alpha with your head, you chase it with your heart.

  • Ray

    Apple is stability and “the known” for investors. This is why most conservative mutual funds include a significant ownership of Apple. One equity analyst was discussing yesterday how Apple is increasingly perceived as an annuity, as most of its profits are increasingly derived from its smartphones that have a clear pattern y/y and are a product category that might not be disrupted in the next decade at least. Wearables are really far from being that disruptor, as their benefit/cost ratio is very low.

    So risk right now would be investing in a startup that is trying to disrupt Apple or Google or Facebook… Xiaomi is one of those, innovating at the business model level, currently the startup with the world’s highest valuation, higher than Uber, thought it seems they’ll have a hard time in western markets. So it will probably be another startup we haven’t heard of yet. If you have some idea of which one, this is the risky investment to make.

  • katherine anderson

    But isn’t Apple both the Unknown and the Known:

    It’s the person with the large (the largest ever) inheritance: the $200+ Billion cash in the bank;

    It’s the city with the stable, capital-intensive manufacturing and growing service industry base, e.g, ApplePay, AppleMusic, iTunes, and now AppleNews, with more media services to come …

    It’s also a monopoly … not a state legislated monopoly, but a natural monopoly, making and selling the best computing devices that staggering numbers of people around the globe want to buy over any other comparable choice. A patent is a monopoly too (awarded by the state), and Apple has many.

  • Samir Soriano

    Hi Horace,

    “Historically, capital has always gone toward the stable and away from the unstable. Wealth has gone the other way.”

    Hasn’t Warren Buffett made his wealth off of fundamental investing? Hasn’t value investing made a lot of people wealthy? Or am I missing a different point?

    • http://www.asymco.com Horace Dediu

      Wealth has many meanings. The one I’m trying to capture is the creation of value (not merely its transfer). You can certainly make money seeing value where nobody else sees it which is in a way a transfer from the uninformed to the informed (or the foolish to the smart). I interpret Buffet’s style of investment as going to antique shops or garage sales on the weekend and finding gems. The contrast with building a company that changes the world is quite large.

      • Samir Soriano

        Thanks for the response. I now understand what you’re saying and that makes sense.

        What’s now less obvious to me though is if and how this applies to Apple. (Apple’s mentioned many times in the comments)

        Yes, their business relies on launching hit after hit.

        It seems like they’ve recently had a bunch of me-too launches that have grown industries (smartwatches, music streaming, bigger phones) but have done little to create additional value. Apple Watch in most regards provides the same value as Android Wear and other alternatives (admittedly within Apple’s ecosystem as the advantage) while streaming music is already a crowded space that has very sufficient options even within Apple’s ecosystem. A big phone is a big phone, and I really only see Apple Pay (thanks to its incredible execution) as the only launch that creates real value.

        To me (but who am I, anyway?), it seems like they’re coasting off of a previous (and masterful) growth in brand recognition. Would Apple’s recent launches be perceived as ones that “[create] value” if they were launched from a different brand?

        I’m no analyst, so I’m curious of your further thoughts. I own a healthy amount of Apple shares, and am unsure if this post is in relation to Apple or if I should consider this in a vacuum. Has Apple’s brand recognition on previous success created a runway of stability for them?

        Thanks.

      • quant

        Did you think the same thing about the iPod and other mp3 players as you do now about the watch? I think an excess of rationality, in the form of feature checklisting, is blinding here. There can be a gulf between the quality of two things that you have quantified to be nearly identical.

      • Nevermark

        Exactly. Lots of features are put together badly. Then someone puts them together well and critics who have never tried building a product say “but its not new!”

        Seemingly small differences can make huge differences to customers and require colossal invisible engineering challenges to be overcome.

        I think these products are too complex for the average person to appreciate what goes into them. People think iPhones are just little rectangles with touch screens painted on. They don’t think about the billions of transistors, millions of lines of code, or the tens of thousands of man hours inventing new material processes.

      • Bob

        There’s an argument that the real innovation was iTunes. It was truly a step beyond what was available at the time. The iPod was a perfect match for that software, but the ease of having your music organized within the one functional program made the concept rock solid.

        I think a reinvention of iTunes could be another big win for Apple. It’s low hanging fruit.

  • Jeff G

    My answer to each of the following is the same…

    “Let’s say I offered you the option to invest in a monopoly or in a hit-driven company whose survival depends on always finding the next big thing? Which would you invest in?

    Before you answer, let’s say I offered you the option to invest in a person who has a large inheritance or a person who is poor but is hustling for any opportunity. Whom would you invest in?

    Before you answer, let’s say I offered you the option to invest in real estate of a city which depends on a stable, capital-intensive manufacturing base or one where they make nothing but movies. Where would you buy land?”

    …It Depends!

    What is the track record of the person with the inheritance. Who is it? It could be Warren Buffet, or Carl Icahn. What is the track record of the poor hustling person? How old are they? Maybe they are 65, poor for a reason and their prospects are also poor.

    The same goes for the othe examples. The devil is in the details. I get your logic here, but to me it’s as arbitrary as the tortoise and the hare. In the story, the tortoise wins, but in reality it would all depend on the qualities, features, and length of the course and how the animals were trained and conditioned to perform.

    The answer to a great many questions is often, It Depends.

  • Walt French

    Twitter buddy @ZCichy helpfully points us today to a NYU/Stern presentation (YouTube):

    http://bit • ly/1Kn5Y4p (sorry; URL intentionally borked)

    in which Prof Galloway helpfully notes Apple is “hit-driven,” which he goes on to note means, the buyers are too rational. If somebody comes out with a product that does 80% as much as 20% of the cost, customers will leave Apple. In contrast to “prestige” brands.

    He also observed that Ahrendts didn’t leave Burberry, take her family to Cupertino—have you been to Cupertino?!?—just to run stores;

    Apple is going to launch sunglasses, apparel, luggage, fashion, jewelry…Luxury community: wake up, here comes Apple!

    There must be some truth in both parts, even tho he utterly fails to acknowledge the loyalty Apple works so assiduously for, the characteristic that ties consumers to prestige brands. And the implausibility/gag factor for me of Apple Sunglasses.

    But it’s a wonderful presentation for thinking about Apple Music. Not so much a money-maker per se, if it succeeds—after it gets over its awful startup problems—it’ll be great for building loyalty/identification, moving the question of sticking with Apple for your next iPhone even further from a dollars-and-cents decision about whether you could get an almost-as-good-as-a-$600 phone for $250.

    • Space Gorilla

      Something to consider, the move away from subsidies has led to installment payments, which makes the perceived cost of an iPhone even lower. It may not be a question of comparing $600 to $250 but rather a mere few dollars more per month in payments. Monthly payments make luxury goods more affordable for normal people (like leasing a BMW). The ‘death of subsidies’, long thought to be a bad thing for Apple, is probably just the opposite.

      • Jay Landsman

        Nonsense.

      • Space Gorilla

        In what way? Much as I love one word drive by comments, I enjoy actual discussion much more. We do have a bit of data on the issue. Subsidies have decreased and yet iPhone sales have increased and share has increased, pretty much everywhere in the world that iPhone sells.

        Now this doesn’t mean I’m 100 percent correct, but common sense and reality does show us that humans like paying for more expensive goods over time, when given the option. So we lease BMWs, we buy houses we can’t really afford with long term mortgages, we use credit cards, we pay for all sorts of things with monthly payments. Why would buying an iPhone suddenly make this not true?

      • http://loewald.com/ Tonio Loewald

        The other thing is that Apple can sell an iPod Touch (which is an iPhone minus a radio and attendant licenses) with state of the art hardware for $200 (and presumably make its usual margin). That has to be terrifying for its competitors, because they’re losing money selling horribly compromised phones at that price. Apple is kind of saying — want a price war? Bring it.

      • Space Gorilla

        Yes, Apple can move down market if it needs to. I suspect it won’t need to, at least not very much.

        I’ve also wondered if Apple will start a financing program. A brand new iPhone could be maybe $30 per month at your local Apple Store. Perhaps there are reasons this is a bad idea (too much risk?), and maybe the carriers will all handle this kind of payment plan anyway.

        Imagine your $200 iPod phone on a two year payment plan, that’s maybe ten bucks a month. Who would buy a cheap Android phone at that point?

      • http://loewald.com/ Tonio Loewald

        Exactly. The “cheap” Android phones are actually $100-200 with wafer thin or negative margins. (The Moto-E, which is comparable to an iPhone 4S, is $100 or so — less with hidden subsidies.)

        The only reason Apple doesn’t compete at this level is that there’s nothing in it for them. If they suddenly needed market share — watch out.

  • Nevermark

    Except that every huge company was previously a slightly less huge company that continued growing despite its almost-as-stable base. Every real estate bonanza was a slightly smaller real estate bonanza that continued to have legs. Every wealthy person was at one time themselves (or their benefactors) a slightly less wealthy person that got wealthier anyway.

    Unless you define “stable” to mean “not growing anymore” I don’t this advice means much.

    Apple is stable. It has wealth. It is located in the right city in the right industry. But it will grow or not based on what it does next, not based on how stable it is now. Its stability is an advantage not a disadvantage.

    The fact that eventually some wealthy entities lose their edge doesn’t mean they are more likely to than ambitious poor entities.

    There are so many more poor people that of course SOME of them are better bets than the current rich in retrospect. But they are harder to identify more without special knowledge they are more risky so not less risky.

    • http://loewald.com/ Tonio Loewald

      Isn’t the whole point of “The Innovator’s Dilemma” (which I consider to be an overrated book, but whatever) that wealthy entities ARE more likely to lose their edge than ambitious poor entities (or new entrants in particular). An existing, successful company can develop a new product and fail simply because (a) the new product’s potential seems paltry compared to existing business, (b) the new product threatens existing business, or (c) simple complacency. Kodak and Xerox — which both invented the technologies that would destroy them — both fall in there somewhere, and I’ve experienced these phenomena directly on a smaller scale.

      Apple’s real vulnerability is a small entrant that successfully innovates before it can react because it ignores the opportunity owing to scale. There are business opportunities out there Apple simply won’t touch because they are too tiny to move the needle now. So far, Apple has been lucky that no-one has executed a new product (e.g. MP3 players, smart phones) well enough that Apple couldn’t come in — seemingly — way too late and eat their lunch. (Apple’s succeeds by finding a great product idea someone else has already executed badly and crushing it — every product they’ve been successful with aside, arguably, from the iPad — is an example of this.)

  • demodave

    “Historically, capital has always gone toward the stable and away from the unstable. Wealth has gone the other way.”

    Horace, can you explain this in a little more detail, please? I work in a very capital-intensive and largely low-margin business (semiconductor/sensor manufacturing), and I admittedly have avoided trying to understand money, because to me, it has always driven horrible business decisions (because the money the accountants can count doesn’t account for the money that they cannot count in the form of waste). But to be truly “rule breaking”, we require significant (nearly incredible) amounts of capital.

    Is that essentially it? Capital goes one way and wealth the other, because capital is expensive and all that wealth really wants is easy money?

    To me, that somewhat goes against the many polemical questions you have asked about. Not just orthogonally, but completely bass-ackwards. And I can’t stand it.

    • http://www.asymco.com Horace Dediu

      i define wealth as the creation of capital. In a time of wealth (as we have now) capital is quite abundant and cheap. In some capital markets capital has a negative return: you have to pay somebody to keep it for you.
      In the current environment of cheap capital, it’s not possible to create wealth through the “wise allocation of capital”. Wealth comes from the creation of new markets and not than the increasing of efficiencies or sustenance of existing markets.
      This is what I’m trying to capture.

      Capital flows to “efficiency” and predictable sustenance. Wealth however goes to risk and creation of new things.

      • demodave

        I have a very difficult time seeing now as a time of wealth. Maybe that is because I don’t get to fund the initiatives that will make my professional life easier. And also perhaps because I have been laid off at a time that I don’t honestly believe that I was a poor performer. I believe (firmly, ardently even) that the changes that I want to make are beneficial to my higher-ups, but they don’t want to invest. And so we hear that my site is one of the worst performers in my strategic business unit, and yet they (higher-ups) don’t invest in the resources that I believe we need in order to perform better.

        To those who see it one way, investing in a site with high scrap and poor on-time-to–request delivery is reverse perversion. To those who see it another way, investment would allow scrap cost reduction and better on-time-to-request performance.

        It’s painful. But it is at least “self-consistent”. So if I choose to participate, I have no-one to blame but myself.

        Of course, “creation” of capital is a bit of a misnomer (at lest in my not so humble opinion). *Attraction” of capital is more a propos (again, IMNSHO). The capital exists, but it needs/wants to be redirected (attracted) to wherever your/my personal Jedi mind-trick wants it to go. If putting money in has a favorable ROI, People call it “creation” of capital. I see that simply as ROI.

      • demodave

        PS Not trying to argue or be pedantic. Just trying to understand your point of view better. I believe that if I see another point of view better, it clarifies my own.

  • jimble

    But where’s the risk? Apple’s resurgence has been around just as long as Amazon has.

    The perception is that Apple needs to rely on hits but that isn’t the reality. The reality is that Apple could plop along just like Amazon without its hits. It could sit on the iPhone and the Mac for decades and just get by as Amazon does. Apple’s hits add additional value to an already stable company. Amazon’s attempts at innovation are the equivalent to apple’s hits. Putting a button on your washing machine, bringing out the kindle range, etc. theyre all designed to add that additional value.

    The problem with the stock is that right now it’s behaving only slightly above where it should if Apple wasn’t in the hit business. You say don’t buy Apple because you assume that the current price is inflated because of the hit expectation but if anyone was actually convinced of the next hit, the price would be skyrocketing. So id argue that $120 is apple’s stable price. There’s no logical reason why it should go below that but there are plenty of reasons why it should go above that. And you can’t show a single piece of data that would dispute that. Wall Street simply has no idea what they’re working with. And that’s the stock’s problem.

    In other words, your argument is completely right insofar that it’s the reason why people are behaving as they are with Apple stock but the reasons why they are behaving this way are absurd.

    • http://loewald.com/ Tonio Loewald

      Apple is so different from Amazon that I don’t see how it could “plop along just like Amazon”. Investors seem to tacitly assume that Amazon’s strategy is to obtain some kind of monopoly position and then start charging rents in the future, and that no-one will notice and do something about it. The fact that Amazon managed to get Apple in trouble over anti-trust for having the temerity to try to compete with Amazon in its near monopoly on electronic books suggests that they may be right.

      Actually I think the market is correct to assume that Apple’s core businesses will slowly go away (either through commoditization or disruption — the iPod is a fairly straightforward example). (The Mac may look like an exception, but I suggest it’s simply making up for having had an artificially depressed market share from about 1992 onwards owing to spectacular mismanagement from 1988–1997.) The question is whether Apple can continue to be the company that successfully benefits from new waves of technology.

      • berult

        There is a fortune to be made, and good fortune to be blessed with, pauperizing the philosophical literate in the very process of popularizing the political illiterate.

        Entropy wouldn’t have it any other way.

  • Ray

    Interesting chart by The Economist showing the relative market value of the top 100 US tech companies since 1980:
    http://www.economist.com/techfirms

    It looks like specialized tech companies have been carving out different areas from the integrated behemoth that IBM once was: servers, personal computers, software, semiconductors,

    Is Apple moving towards becoming the future integrated tech behemoth a-la-IBM?

    • Walt French

      Impossible to understand the concept w/o seeing companies that existed in 1980 but long ago dwindled to nothingness or acquired.

      “Retrospect bias.”

      In the mutual fund industry, my former field, a good fund might go from being in the top quartile, have a couple of average years, and find themselves deep in the bottom half on say, a 5- or 10-year basis.

      Why? Because the firms that WERE in the bottom half disappeared, leaving only firms with the strongest recent track records in the charts.

      In stock funds (which, after all is kinda close to the post’s point), the industry consciously plays to this investor bias. An investment group will start say, a dozen new funds per year, randomly assigning what they think are their “good” managers, and asking them to take clear active bets against the index. After a year or two, the winnowing kicks in: funds with lousy records are merged into those with good ones.

      The lead manager may get demoted (or continue with other responsibilities), but a lot of the research team that led to the poor results will continue to work on the surviving fund. I.e., it’ll have good numbers but no reason to believe that the overall effort is much different than the weighted average of the two funds, i.e., very roughly, about average.

      Lather, rinse and repeat: each year, the lower-performance funds are shuttered and the assets merged into those with better track records. The track records of the surviving funds will be far higher than the average dollar invested by clients of that the fund group.

      This looks just a tidge slimy but is a fact of life in the industry. Until the SEC mandates a better way of representing the history of the current fund team, funds that DON’T do this, essentially get driven out of business by undiscriminating customers.

      There were some GREAT tech companies decades ago, companies that changed the industry but then stumbled or sagged into irrelevance. Tech is a cruel task-master, with no guarantee of survival year-to-year, and the risk that your biggest competitor leap-frogs you before you get payback on your huge investment. (Think, e.g., Sun Micro, which brought out a powerful series in the face of the Great Recession, a line that never paid for its R&D before business picked up again and competitors had newer designs.) Every memory chip producer except Intel, which abandoned the business.

      The Economist’s chart does not tell the actual story of tech. Too bad. An unforced error.

      • Ray

        That’s right, the chart doesn’t show those companies that could have revolutionized their field with key innovations but then disappeared. However once could argue that the companies remaining today are the ones that were able to capitalize and turn those innovations into long-term sustainable business models.

    • http://loewald.com/ Tonio Loewald

      Perhaps concentrate on the “real” view of the graph that shows real $ and the total size of the pie. IBM actually is pretty stable — the mainframe/systems-integration business was mature in 1980 and they’ve pretty much sat on it. What the chart shows is Apple accounting for most of the real growth in recent years. Microsoft is the company that peaked and then got cannibalized.

      • Ray

        True, IBM has had a more or less stable valuation in real dollars over that horizon, but the tech industry has multiplied its value by ~20x. Which suggests that the ~20x growth and associated innovation did not come from IBM but from other companies: Intel, Microsoft, Cisco, Oracle, Google, Apple… However at least IBM was able to adapt, change their product offerings and business models and survive, unlike other tech companies.

  • marcoselmalo

    Whoah! I saw the title and thought this was going to be about an episodes of “Friends”.

  • Sergei

    The comparison between a staid monopoly and Apple probably isn’t the best one.

    If offered a chance to invest, regardless of current market valuation, between Facebook and Apple, I would pick Facebook any day. It has a much tighter grip in its market, ie, social networks, than Apple has in selling tech hardware.

    • http://www.asymco.com Horace Dediu

      There is no difference between a staid monopoly and a monopoly. A tight grip on a market means a monopoly is forming with the same consequences.

  • Camden1

    Not Warren Buffett’s wealth.