Thursday, January 20, 2011

Pro analysts: mediocrity has become a habit

Horace Dediu is just amazing. He's so much more fun to read than all my dreary number-filled tables. Go read his "existential theory" of asymco. A true "entertainer," indeed.

Yesterday he responded to the analysts quoted in the 'underdogs' Bloomberg piece about us. Horace nails it (emphasis mine):
[...] I was glad to see that Adam Satariano’s well-written piece finally got some reactions from the professionals [...] However, neither answer satisfies.

Wu cites regulation and scrutiny but that does not prevent one from being intellectually honest. What matters is not avoidance of conservatism or exuberance. What matters is rigor; being impartial to everything but the data.
One must keep one’s convictions in proportion to one’s valid evidence not to regulatory oversight (which is there to prevent abuse, not balance).

Peterc cites pressure from clients (hence the obligations of employment). That implies that professionals
are under pressure to say something other than what they believe, which is a sinister form of self-censorship. Not only is that less valuable as an opinion, but it’s likely to be less accurate as well.

Horace's warning to professional analysts, as highlighted by PED, is that their biggest issue is that their "profession" risks becoming de-professionalized. Which crashes into the old existential question about what is professionalism:
The difference between professionalism and amateurism isn’t whether one is well paid or not or whether one is anointed with credentials. It’s whether one is consistently out-performing randomness (note emphasis on the consistency).

When I heard Tim Cook paraphrase the "excellence is habit" quote, I first thought it was from Aristotle. Wikiquotes says no, it's a misattribution actually coming from a commentator to Aristotle. Anyway, here's the real quote from Aristotle's Nicomachean Ethics:
It is well said, then, that it is by doing just acts that the just man is produced, and by doing temperate acts the temperate man; without doing these no one would have even a prospect of becoming good. But most people do not do these, but take refuge in theory and think they are being philosophers and will become good in this way, behaving somewhat like patients who listen attentively to their doctors, but do none of the things they are ordered to do.
Sounds just like pro analysts, no wonder they don't "get" Apple: It's become a (bad?) habit for them. Was Cook perhaps sending them a hint?

See also (with some flawed assumptions IMO) Pragmatic Capitalism: APPLE MAKES A MOCKERY OF THE SYSTEM – AGAIN…. (apologies for shouting it, but I shouldn't change the author's title).


Horace Dediu said...

I would not be surprised if Cook read Aristotle. He seems like that kind of guy.

Well researched and wonderful connection.

Dennis Hildebrand said...

Thanks for linking existential theory..

A great read - Horace is King!

Al velasco said...

Hey Deagol,

I have always held your opinions in high regard. Here is a question for you.. What do you think is the probability that Apple begins using Liquid Metal in their consumer electronics?

By the way, Apple recently acquired the perpetual rights to all Liquid Metal intellectual property for use in electronic devices. I ask because you have a good grasp of their earnings. How compelling would the difference in cost of Liquid Metal have to be vs. machined aluminum?

Also, let me know what you think about LQMT..

Maybe you'll like what you see

deagol said...

Al, I would assume that probability should be close to 1, since I doubt Apple licensed their technology for nothing. In fact, Apple already got approved its first patent applying it on a fuel cell battery.

Having said that, I have no idea on the details of the deal, how it might affect Apple's costs, nor LQMT's finances. It seems there are no limits to the potential applications, but then why has it taken so long to produce a hit (founded in 1992, constant stock decline since its IPO in 2002 above $20!)?

I did notice the big boost in revenue and operating income last quarter due to the licensing deal, but then there was some other income adjustment that resulted in a big loss, not sure what it means. Before that, it seems the company has been reporting losses for some years.

It's not clear to me if Apple's deal alone can sustain long-term profitability and EPS growth for LQMT. I wonder why Apple didn't outright buy them for a couple hundred mil or so (perhaps they tried and got rejected). I couldn't find any analyst covering the stock, so there's not much to go by other than their own reports.

On top of the fundamentals uncertainty, some other things that would make me weary of investing in LQMT are, in no particular order, its penny-stock/OTC status, very low trading volume/liquidity, its dizzying 10y chart, no info on short interest or institutional investors, and a pretty crappy website.

It might work wonders for investors looking for that kind of risk, but it's not my kind of thing. Good luck!

Roy in San Jose said...

Surely, the worst of this mediocrity was epitomized by Alex Gauna (who?) of JMP Securities (who again?).

Nice column today by Philip Emler-DeWitt, worth reading:

Steven Anderson said...

Very nice post. Keep posting more.