I distinctly remember arguing with one of my buddies (who happens to be one of Canada’s largest US equity portfolio managers) in the early 2000s about the Apple iPod. He told me I was insane to think that consumers would buy the what-he-thought-was-overpriced-iPod when there were all sorts of equally good MP3 player alternatives. And he was not alone with this thinking. For the longest time the great High-Tech Strategist letter writer Fred Hickey predicted the death of Apple’s iPod due to its high price when compared to the Diamond Rio and the myriad of other competitors.

Although I cannot claim to be one of those Apple devotees who stuck by the company through the dark days without Steve Jobs, on his return, I was intrigued by the company’s products. When Apple introduced the iMac G4 with the swivel screen, I took the plunge. Until that point I had always been a big Microsoft PC user (almost all trading desks were run from Excel spread sheets in those days – or from the occasional SUN Unix box that I was forced to learn). So naturally, at home I had a homebuilt, kick ass Windows PC. The trouble was that my wife was always phoning me asking how to make something work. She was no tech wizard, but neither was she a complete neophyte. But back then, Windows was always breaking, and it was a convoluted complicated affair to keep it running smoothly. So I bought her our family’s first Apple computer…

From that moment on, I never heard another “how do I do this?” computer question again. The Apple computer just worked. It was amazing. She went from calling me every second day, to never needing my help with the computer in one fell swoop.

Still dubious, I waited before I took the plunge myself – after all, Macs were what advertising guys used – not traders. But when Apple made the move from Motorola to Intel chips, all of a sudden you could dual boot an Apple computer into both Mac OS/X and Microsoft Windows. There was no excuse now; I could safely experiment with an Apple computer without being stuck in an unfamiliar operating system.

With the advent of the move to the Intel chipset, I bought myself my first Apple computer and there was no going back. I found the exact same thing as my wife – the computer was easy to use and most importantly – “just worked.” There were no more blue screens of death from a driver installation gone wrong. I spent more time computing as opposed to fixing my computer. Yes, the Apple product was more expensive, but the huge savings in time was well worth it.

So when Apple’s iPod was still competing with the other MP3 players, I tried to explain to my skeptical buddy that the savings from the thing “just working” was well worth the extra cost. Lots of people forget now, but there were plenty of naysayers that felt that Apple products were overpriced products that would forever be “niche” items.

Little by little, the consumer got fed up of the cheap DELL boxes and the crappy MP3 players, and the fact that Apple’s products were so well built, reliable and easy to use, won them over. This transition into the world’s largest tech company was not an easy task. It took the iron will of the previously ousted Apple founder, Steve Jobs. In what will go down as one of the greatest business stories ever told, Steve Jobs was able to resurrect Apple from near bankruptcy and transform it into the world’s largest publicly traded company.

Yet during the period, Jobs faced an onslaught of business consultants, Wall Street analysts, and other technology specialists who told him that his plan would not work. I remember reading research reports about the “wasted money” that would be sunk into Steve’s new fangled idea of having stores that sold only Apple products. Today we know Apple stores sell the most merchandise per square foot in all of retailing. But when Steve first came up with the idea, it was uniformly ridiculed. No one was bullish on it. And don’t think that I am trying to rewrite history and claim I realized it would be a success. Although I was warming to Apple’s products, I thought there was no way that the stores were going to be anywhere near as successful as they turned out to be. But Steve knew.

We all know the famous line from Henry Ford: “If I had asked people what they wanted, they would have said faster horses.” It takes a Henry Ford or Steve Jobs to have the sheer strength of will to lead people towards what they don’t yet know themselves.


Steve Jobs was a true genius that combined with an unbelievable arrogance, to create one of the greatest success stories of all time. He knew what was needed, and he wasn’t afraid to go against the grain to make it happen. He didn’t listen to Wall Street analysts. Steve wouldn’t have given two shits what Carl Icahn thinks. I doubt he would have even taken Carl’s call. Steve knew what needed to be done, and he didn’t listen to anyone else telling him how to do it.

When Apple was developing the iPhone, Steve delayed it numerous times because it wasn’t ready. Or, at least it wasn’t ready in his eyes. Any other business leader would have shipped the product as soon as possible. Not Steve. He wasn’t afraid to send his design team back to the drawing board because it didn’t live up to his ideals. Steve didn’t want to just create another smart phone – he wanted to change the whole idea of a smart phone.

He was more interested in changing the world than making money. This motivating driving force of the company’s founder set the tone for Apple.

This is what made Apple so successful. There was never a focus on profits. The focus was always on creating the best product.

When Steve was nearing the end of his life, he did his best to impart that spirit into the company. He tried to pick successors that would harbour those same values.

And although I think they have been successful for the three and a half years since his death, many of those projects were set in place by Steve in his final days.

We are approaching the period where Apple’s products are no longer the result of Steve’s pipeline. The company is now firmly in the “after Steve” era.

And the iWatch is the first major product launch from this new period.

I have always said that it would be difficult, if not impossible for Steve’s replacement to replicate his success. To have the strength to gamble on your own judgement the way that Steve did (many times in the face of harsh critics) would simply be too difficult with a company the size of Apple. Not screwing up would be your main priority.

And how do you “not screw up?” You take the safe road. You offer consumers lot of choices. You branch out and expand your brand so there are no big bets.

Which is exactly what Tim Cook is doing. Steve Jobs was adamant that there should be only one size iPhone. Cook’s Apple produces three different sizes. Now, you will probably argue that Cook was right to offer different size choices, and I would find it tough to disagree with you, but there is no doubt that Cook is taking a different path than Jobs.

Take the new iWatch. Have you had a look at how many different versions there will be at launch? It is a complete cluster fest of different SKUs. Contrast that to the Steve Jobs’ release of the iPhone. There was exactly one version.

And this watch… has it achieved the same Steve Jobs’ rigorous standards of changing the world? Would Steve have shipped a product with this poor a battery life? And then the most important point, would Steve have shipped a product that was priced at an obscenely high point as a fashion accessory?

That’s right, Apple is no longer a tech company with products that “just work.” They have became a fashion company. According to NYU Stern Business school professor Scott Galloway; “Apple will be the first trillion dollar company on their transition to a luxury brand.”

Scott recently gave this terrific presentation where he went through the business prospects for what he calls the Four Horseman – Facebook, Amazon, Google and Apple. It is well worth the fifteen minutes and I highly recommend it:

Here is the link if you can’t see it in the email version of this letter.

Although I agree with many of the points that he raises about the difficulties that Amazon and Google face, I find his arguments for Apple’s continued success to actually be the seeds of their own fall.

Scott compares Apple to other fashion companies. Given their move into $15,000 watches, it is not a bad comparison to make. But when Apple ceases from being a computer company whose products “just work” and instead focuses on becoming a company based on fashion, you know the end is near.

Steve would be rolling over in his grave with the introduction of a fashion accessory. He was obsessed with products that made peoples’ lives better – not helped them be cool.

Yes, I know that Apple had long ago become “cool.” It has become a highly desired social symbol. But the reason behind that success was because the products were so good. Not the other way round.

The iWatch’s battery life is laughably short. I don’t know who is going to want to bother charging their watch constantly, but I am going to pass.

As people realize that this product is no longer Steve-Jobs’-Apple-good, they are going to rethink their desire to own a tech fashion accessory.

I am not afraid to say it; I think that Apple has jumped the shark with this watch.

Now maybe this will be the next big thing. Maybe I will look like a fool for ever doubting that the iWatch wouldn’t be a massive hit. But I know that Steve would have never come out with this product. It is not ready for prime time, and Apple is relying on its status to sell them – not on the product itself.

Everyone is bullish on Apple. Expectations are through the roof. No one can imagine this product launch being anything but a huge success.

But slowly cracks are showing. At the margin, tech savvy users are wondering about the direction Apple is taking. I am going to leave you with this really funny video, “reportedly” about an Apple engineer talking about the new 2015 Macbook.

Here is the link in case you can’t see the video in the email version of this letter.

Apple has forgotten what made them great in the first place. And this is happening when the market is most bullish on their prospects. They are in the process of “selling out.” Cook is doing what was inevitable. He doesn’t have the strength to push aside the Carl Icahns of the world. He doesn’t have the arrogance to offer a product with only one option. He is in short, no Steve Jobs.

I haven’t even yet mentioned the fact that Apple has recently been admitted into the Dow Jones index. If there was ever a sign that the story was fully “baked in”; that’s got to be it.

Hedge funds all love Apple and are stuffed to the gills with the stock. Anyone who has predicted a top in the stock has been summarily embarrassed as the relentless drive higher has steam rolled any critics.

There is in short, not a single Apple bear standing.

Yet stocks always top when the news seems the most bullish.

I am not afraid to stick my neck out and say it; I don’t know how the news can get any more bullish on Apple. Everything is being interpreted with the most positive view possible.

But I think the groupthink has infected the market to the point where they are ignoring the very real mistakes Apple is making. They have forgotten what has made them great in the first place. I am not as confident as Scott Galloway that Apple can become the first trillion dollar market cap company on transition to a luxury product. I don’t have faith that relying on being “cool” is a viable business strategy.

Today Apple’s market cap is approximately $700 billion. I will take the other side of Scott’s trade. The next $300 billion move in market cap will be down, not up.