Investing lessons from BlackBerry
BlackBerry's (TSX:BB) destruction at the hands of Apple (NASDAQ:AAPL) offers many valuable investing lessons.
The release of BlackBerry's (TSX:BB) pager in 1999 followed by its first smartphone in 2000 revolutionised the corporate world. Allowing busy professionals to check their email when away from their desks, BlackBerries became so popular that they spawned the nickname 'CrackBerries'.
Between early 1999 and mid-2008 BlackBerry's shares had increased more than 90 times. Yet the company's fall was even more spectacular.
Apple's (NASDAQ:AAPL) iPhone was released in 2007, allowing users to not only call and email but surf the internet and use thousands of other applications. It quickly took market share from BlackBerry and has helped Apple's share price increase more than 10 times since early 2007. In contrast, BlackBerry's share price has fallen by more than 90% since its 2008 high.
Here are some of the investing lessons from these dramatic changes in corporate fortune.
1.Market dominance is never guaranteed
At one stage BlackBerry controlled half the US mobile phone market and looked impregnable. Yet the rise of the iPhone and subsequent Android-based smartphones from companies such as Samsung (KOSE:A005930) have whittled that share down to around 1%. The CrackBerry wasn't so addictive after all.
More so now than ever before, a company can reach a position of market strength very quickly and fall just as fast. With industries ranging from financial services to television being 'disrupted' by technological change, this point is especially pertinent now.
2.The first innovation is easier than the second
The BlackBerry was the first device that allowed users to check their email and calls, with security features which made it popular among businesses and governments. It was a revolution, a harbinger of things to come.
But when the company needed a smartphone to compete with the iPhone it failed miserably. The BlackBerry Storm was a disaster. Verizon (NYSE:VZ) – which had worked with BlackBerry to develop the phone to compete with rival carrier AT&T's (NYSE:T) then monopoly over the iPhone – ended up firing BlackBerry according to former co-ceo Jim Balsillie.
Disruption is easier when you have a clean sheet of paper. Once your product is out there and accepted, why undermine it with another revolution? Incremental improvement usually follows radical change, leaving the way open for others to be radical.
3.Do practical, hands-on research
If you'd been lazy and relied solely on checking the BlackBerry and Apple websites to research each smartphone, you may have concluded they were fairly similar.
Had you visited mobile phone carriers' shops, tested the devices and talked to the salespeople, you'd have been far more likely to conclude that the Storm would struggle to compete with the iPhone.
4.Appearances are deceiving
One of the arguments used by Apple bears in 2013 was that it was a hardware company similar to Palm, Motorola and BlackBerry and thus destined to follow them into oblivion. Superficially, this view appeared correct.
Yet as David Einhorn accurately argued, Apple was in fact a software company, not a hardware company. Its strategy revolves around selling beautiful, easy-to-use hardware such as the iPhone and iMac which lock customers into its ecosystem. Users of the device immediately understood this but many analysts simply saw a phone. They did not see the many ways in which Apple reaches into its users lives and keeps hold of them. The really valuable part of Apple's business was unseen.
5.Buy growth companies at value prices
Some of the best investments are growth companies like Apple which have encountered a temporary slowdown on the way to continued long term growth in revenue and profits. Apple's 2013 earnings per share (it has a September year-end) were 10% below the prior year's, ultimately contributing to a 46% decline in its share price from its then high.
However, at its 2013 low, Apple was selling at less than 9x earnings before taking into account the cash on its balance sheet. With incredible customer loyalty and the potential to counter then strong competition from Samsung by releasing iPhones with larger screens, it was a great buy.
6.Think for yourself
Every investor needs to think for themselves but that's what I didn't do in 2013 when contemplating purchasing Apple shares. It seemed one of the best value stocks I'd seen yet I mistakenly deferred to the views of great investors such as Dan Loeb and John Hempton and didn't pull the trigger. Hindsight is a wonderful thing but if I'd bought in 2013, I'd have at least doubled my money in just two years. Everyone gets it wrong, even the pros.
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