What happened over the next seven years will be written about in business school case studies for years to come. Last week, Apple overtook Microsoft in the weighting of the S&P 500 index to become No. 2 behind Exxon, the oil and gas behemoth. Had you purchased $1,000 worth of Apple shares at its low nearly 7 years ago, you would have a cool $41,222 today.
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What Hedge Fund Managers Can Learn From Apple v. Microsoft
On Dec. 31, 1999 Apple closed at a split-adjusted price of $25.70 per share on the Nasdaq. Like many other technology outfits, the future possibilities for the company were bright. The new economy was humming along at a breakneck pace, the government budget was balanced, college grads were finding work, and investment banking and venture capitalists were enjoying their profits from IPO market lucre.
The mood at the time was just downright giddy. Even though many market participants saw a massive bubble in technology stocks, and Internet stocks in particular, the music was still playing and the actors still dancing (does that phrase sound familiar?). Apple's stock price would go on to peak in 2000 just 13 days after the Nasdaq peaked intraday on March 10 that year. Like so many other companies of the time, Apple's fortunes did not last and the stock price took a tumble, finally bottoming on April 21, 2003 at a split-adjusted price of $6.57 per share. That day, the market capitalization of Apple was just under $6 billion.
Let that number sink in just a little bit: $6 billion for the entire business! That same day, Microsoft closed at a split-adjusted price of $20.58 per share and market capitalization of $180 billion. The Nasdaq, meanwhile, closed at 1,424.
What happened over the next seven years will be written about in business school case studies for years to come. Last week, Apple overtook Microsoft in the weighting of the S&P 500 index to become No. 2 behind Exxon, the oil and gas behemoth. Had you purchased $1,000 worth of Apple shares at its low nearly 7 years ago, you would have a cool $41,222 today.
So what made Apple the storied stock of the past decade, vaulting it past the previous king of tech stocks? And what does this battle signify for hedge funds and their place in the asset management industry? The Shadow has a few thoughts.
Apple became a dominant player in technology today by imparting a new culture of gadget consumerism, communication and entertainment. The company innovated beyond people's expectations, beginning with the introduction of the iPod in 2001 and continuing to this day with the recent release of the iPad. It brought about simple, some could even argue obvious, innovations that truly simplified people's lives. This, coupled with impeccable execution, marketing and brand awareness, created the business icon and $270 stock price we see today.
Microsoft, on the other hand, rested on its dominant position and monopoly of powering the world's operating systems, and as a result lagged both the Nasdaq and S&P 500 over the last seven years. A similar $1,000 investment in Microsoft on that same day back in to 2003 would have yielded just over $1,500 today.
The innovation at the smaller, scrappier Apple was a trait commonly witnessed at many hedge funds over the past 10 years. Growth in the hedge fund industry, while not as profound or dramatic as Apple's, certainly changed the investing and asset management landscape.
According to some estimates, there were fewer than 1,000 funds in existence back in 2000 managing roughly $400 billion. Today, investor demand for innovation has caused a 10-fold increase in the number of funds with nearly $2.3 trillion in assets under management.
Financial innovation, some unnecessary, some extremely beneficial, has occurred during this period. The creativity and the ability to attract the most talented professionals away from traditional firms has been the primary driver and success for hedge funds, as much as it was to Apple.
Hedge funds have also done their part in creating a new investment culture, changing the way some retail investors, and nearly all large institutions, approach the markets and diversification by opening up new strategies, geographies and even new types of securities. It could be argued that 130/30 funds, short biased ETFs and portable alpha strategies, not to mention growth in derivative offshoots such as prime brokerage and trading software, among other innovations, all stemmed as a result of the success and growth of hedge funds.
While perhaps not quite as engaging of a story as Apple's, the hedge fund industry and resulting culture continue to be positioned to succeed well into the future. Creativity and talent have given hedge funds a leg up on traditional asset managers. As long as hedge funds continue to deliver innovation, upside surprises and creativity, this industry will continue to be the trailblazers of finance, much like Apple was after it the rose from the ashes of the dot-com crash.
Tue May 03, 2016 9:51 am by Andrea ForexMart
Subject: What Hedge Fund Managers Can Learn From Apple v. Microsoft 
