After an Iconic CEO Leaves

Since Apple is having a particularly rough day today, I thought it would be worth reposting something I initially posted in August 2011 when Steve Jobs officially stepped down as CEO.  It's a comparison of DIS, WMT and MSFT after their iconic CEOs departed.  Looking at DIS and WMT, each of those companies continued to be top stocks for 5-6 more years.  MSFT underperformed the S&P but greatly outperformed the Nasdaq after Gates left.  Can AAPL's outperformance last as long?  It's gone about a year and a quarter without Jobs and until recently has remained a strong stock, but perhaps tech is such a rapidly changing space that the benefit of Jobs' vision has less longevity.

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Originally posted 8/25/11:

With Steve Jobs stepping down at Apple, there are plenty of questions about what comes next.  Jobs is undisputedly the most influential CEO of the last decade and one of the most influential people of the last 35 years.  Jobs' contributions to society have been extraordinary and today he is deservedly drawing comparisons to other great industrialists like Ford, Edison, Carnegie and Rockefeller.  When the history books are written, it's likely that these comparisons will hold up.

While I wanted to run a stock chart comparison to these early 19th century industrialists, individual stock data from the early 20th century isn't easy to come by.  Still, there are at least three iconic CEOs of the latter 20th century who can arguably be compared to Jobs: Disney, Walton and Gates.  Here's a look at how each company's stock performed in the decade following its CEO's departure.

Each chart begins on the date that the CEO stepped down.

DIS

Click to Enlarge

WMT

MSFT

What's striking is that in the case of DIS and WMT, each stock continued to massively outperform the S&P 500 for 6 and 5 years respectively after the departure Disney and Walton.  Perhaps this is a testament to the bench of talent that a great CEO cultivates.  However, after the 5-6 year mark, both stocks had prolonged periods of underperformance (for DIS at least partially due to the 1974 bear market).  This may be an indication that a visionary CEO can continue to carry a company for years after leaving, but after a while, the company loses the benefit of that vision.

Of the three companies, only MSFT has underperformed the S&P 500 from the day that Gates stepped down.  Of course at least part of this has been because of the collapse of the tech bubble (MSFT was trading at about 60x earnings at the time).  Still, looking at the underlying earnings of MSFT and the gross mismanagement since Gates left, it is a testament to Gates' leadership that the company continues to enjoy top market share in the PC business.  

Another primary reason for MSFT's poor performance has been because of the efforts of Jobs himself who arguably engineered an organic monopoly in high end consumer electronics.   He will be missed for his vision, but we may not really know how much we miss him for another 5 years.

How Many Words Does it Take to Describe a Business?

After AMZN's report last night and surprisingly positive stock reaction, I decided to turn to the annual report for some perspective.  I was stunned by how little information the company actually provides to its shareholders.

The entire description of AMZN's business is only 1000 words--3 pages.  Amazon web services is described in one sentence: "We serve developers and enterprises of all sizes through Amazon Web Services (“AWS”), which provides access to technology infrastructure that enables virtually any type of business."  Rackspace takes 3700 words to describe a similar business line.

For a sense of how out of the ordinary AMZN's bare bones description is, below is a list of the number of words it takes other large tech, internet and retail companies to describe their business lines.  Most are about 4x as long.  Length does not necessarily equal strength, but does imply some extra information.

Certainly, AMZN isn't just a company of few words either.  Where there's legal liability involved the company is plenty verbose.  The risk factors section is 5826 words and the legal proceedings section is 3812 words.

September Retail Sales

Retail Sales numbers released this morning were reasonably strong, up 1.1% for the month of September and 5.3% y/y.  Sales at general merchandise stores stood out as a weak point though.  General merchandise sales make up about 12.5% of the total and were down 1.1% year over year.

A summary of retail sales data and the categories that make up General Merchandise are below.  Census doesn't break out specific businesses that make up each NAICS category, but it's probable that Walmart, Target and Costco would be included in the category.

PE Multiple Expansion of Largest S&P 500 Companies

The S&P 500 is up 15% year to date, but earnings are forecast to grow 3-5% this year, which mathematically means that we've experienced some multiple expansion during 2012.  Below is a chart highlighting the multiple expansion for the 10 largest S&P 500 companies so far this year.  Of the 10 largest companies in the S&P 500 (to start the year) only one, XOM, has seen multiple contraction on a TTM basis.

The average P/E multiple of these 10 companies has expanded from 14 to 16 during 2012.

Has Any Asset Ever Had a Longer Streak of Positive Annual Returns Than Gold?

This year, gold bears' favorite statistic is that gold has been up 11 years in a row, but no asset class has ever been up 12 in a row.  How does that compare to the longest winning streaks for other assets?

Below is a chart of the longest winning streaks for gold, housing, bonds and equities as well as some individual stocks.  While gold is currently tied with housing for the most consecutive years of positive returns, neither asset class can beat the string of returns put together by MSFT, KO or WMT, which posted positive returns for 14, 16 and 17 years respectively.  A shareholder of Walmart didn't see a negative annual return between 1977 and 1993!