Law of Large Numbers













It seems that as everyone is all a buzz about Apple, the nay-sayers are beginning to pop up.


Again.


Most recently, the nay-sayers were prepared to pocket their profits after Apple disappointed those expecting an announcement of a dividend or stock split.


The funny thing is that the “buy on the rumor and sell on the news” kind of thing never happened.


It’s sort of maddening when the script isn’t followed and the Talking Heads are left out to dry and quickly disavow their admission of shorting shares. Although to be fair, there were plenty of Apple bulls to be found, as well.


Ordinarily, any company climbing as much, and as rapidly as Apple has in recent months, would have sold off on the realization of good news and would most definitely have plummeted on the news not having been realized.


Instead, there was no reason for Steve Jobs to roll over. The kids he left to take care of the place didn’t trash it at the very first opportunity. It’s almost as if they actually cared about their legacy.


No dividend, no split, no Flash.


Among his other positve attributes, you probably have to add “respect for the sacred” to Tim Cook’s list.


But the re-appearance of the nay-sayers is only natural.


They popped up briefly when the iPhone 5 failed to appear, but still, it’s easy to understand why being a nay-sayer is so appealing.


No one remembers the guy who climbed aboard the moving train, but everyone remembers the guy that decided to take the train when it was  subsequently learned that the plane he was supposed to take ended up crashing.


That guy was a genius.


With excitement growing about some kind of iPad product release, shares have moved up to another all-time high. It seems that latter part of the preceding sentence could have been said any number of times since I lost my Apple shares to assignment at $425 not that long ago.


Law of Large NumbersNow, every cynic is citing “The Law of Large Numbers” as a reason to be wary of investing in Apple.


As anyone knows, investors pay for future growth. Also, as anyone knows, according to Woody Allen, an investment is like a shark, in that it has to “constantly move forward, or it dies.”


I try not to burden myself with knowledge or accepted wisdom and I don’t mind distorting quotes or taking them way out of context.


I do like to wait for the next train though, rather than trying to catch a speeding one that’s already left the track.


For me, Apple has left the track, but I also think that the shark will soon stop moving, but certainly not to the point of death. It will still be menacing to others by virtue of its size and reputation and occasional demonstrations of past glory.


From a purely mathematical view, the “Law of Large Numbers” has perfectly rational application to financial systems. At some point, the prospects of continually growing at double digit annual rates would theoretically make the company larger than the universe in which it resides.


That can’t happen.


The only positive that could come out of a price drop in Apple shares is the cessation of the constant barrage of factoids about what Apple’s market capitalization is now bigger than.


At some point, Apple will trade like a regular stock. The way it used to. It may even be subject to macroeconomic factors someday. It’s hard to imagine that it could keep on going as an alternative to food in the eyes of consumers in the event of nuclear holocaust.


Despite the fact that Apple is about as old as Technology companies come, it’s discovered the elusive “Fountain of Cool”, but at some point it has to develop some degree of resistance to the elixir.


And when it does, it will just grow gracefully, rather than by leaps and bounds and through continual mind boggling product transformations..


This week there was an extensive 4 page article in TIME magazine about Pixar. You know, that one time throw-away and trivial company that Steve Jobs bought from George Lucas for $5 million.


What stunned me about the article was that there was only a very brief parenthetical reference to Steve Jobs. For me, that marked something transformational, in and of itself. A couple of years ago, the references to Steve Jobs would have predicated every aspect of the article’s analysis of what made Pixar so special and successful. Not just from a business perspective, but from a cultural one, as well.


Granted, the imprint of Jobs on Pixar was nowhere near the degree at Apple, yet they both owed their resurrection to his genius.


Not that TIME magazine is the barometer of national consenus, but the time will be coming that the Jobs tangible imprint on Apple will also be faded and the intangible value will likewise recede into the mundane and highly ordered columns of a balance sheet.


There are those that insist that Steve Jobs had already laid out the blueprints for several future generations of the iPhone and iPad and who knows what other products.


That reminds me of a very old Mad Magazine story that suggested that Thomas Edison invented every electronic device known to man at the time all at once, but decided to just let them trickle into the marketplace.


Had he done otherwise, my generation wouldn’t have been saddled with the 8 Track player.


But at some point, even the genius of Steve Jobs and whatever legacy he leaves behind to his corporate children, will suffer from the “Law of Large Numbers.” Regardless of the genius that resides within, the history of the world shows that genius fades. It gets more and more difficult to top the great creations and discoveries of your past.


You just can’t keep inventing so many great things at such a breakneck pace.


Creative genious usually comes in a flurry of sustained thought and activity until you are left with a “how can I top this” kind of feeling. For most, their future stabs at creativity are held hostage by the past, blinding them to new insights.


The Law of Large Numbers may keep Apple’s business from continuing to grow along its recent path, just as Google and other high fliers discovered, but that should never come as a suprise. Math always triumphs ovger emotion in the long term.


But more importantly, with size comes distance from the source and those that give strength and inspiration. It’s very hard to root for Apple anymore as the “little guy” doing battle with the big, bad behemoth, when you have become the behemoth.


The just don’t get any bigger than Apple.


If I owned shares of Apple, I would be ecstatic, at least if those were the same shares that I lost at $425. But I certainly wouldn’t go running for the hills regardless of what large numbers might portend.


Despite the competition, Apple still has the aura. The cool factor is still there and it’s still firing on all cylinders.


Instead, I would just  give up the idea that it’s continuing growth is going to sustain all of society.


It won’t, but it’s still very likely to sustain you for a long time.


So, if you do own shares, celebrate the largeness of the numbers.


It’s a beautiful sight to behold, even if you don’t own shares.

 

 

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