Google vs. Apple: Thoughts On Who Wins

Is it just me or has the rivalry between Apple and Google blossomed into one magnificent heavyweight title bout? Could there be a better match up than the arrogance of Steve Jobs vs. the collective arrogance of every living soul at Google? And yet it wasn’t too long ago that these two behemoths were locked in a BFF embrace, that just like peanut butter and jelly, or Brad and Angelina seemed so perfectly suited.

If my understanding of the story is reasonably accurate, the rift came about as a result of Apple’s iPhone success and Google’s desire to get in on the act. Can’t say I blame them, especially since Eric Schmidt was a member of Apple’s board at the time and probably peeked at the secret recipe. No hard feelings, its just business.

However, the big question of the day remains, who will ultimately rule the mobile world:

1. Google is the new Microsoft... The good news for Apple is that Microsoft have officially deserted the battlefield. The bad news is that Google have entered the arena, and they are awfully well prepared. Let’s not make any mistake about it, the mobile market is likely to remain more competitive than the PC market ever was, so Google are high unlikely to achieve Microsoft’s overwhelming market dominance. However, according to Morgan Stanley’s research, the mobile internet market is expected to reach twice the size of the desktop internet market. And since Google already rules the internet, its logical that Android will eventually rule mobile. In truth, Apple’s iOS doesn’t offer much of a defence against the fast evolving Android.

2. Apple is the king of profits!.. Popularity is a pretty cool thing to have, however when all is said and done at the end of the day, its the $$’s that count! And in this arena, Apple is clearly the king of the hill. These pie charts say it all:

Last year Apple sold 17 million mobile handsets, compared with the 400 million pushed by Nokia, Samsung and LG (23 times greater). Yet Apple earned 39% of the entire industry's profits, more than the 32% earned by the three largest handset makers, combined!

Google’s estimated revenue from Android this year is expected to top $1 billion. Apple’s iPhone revenue in the 1st quarter of 2011 alone topped $11 billion!.. No matter how popular Android becomes over the next 5 years I just can’t see how they catch up to Apple’s big bucks.

Bottom Line

So, all in all, who wins? My short term vote (next 5 yrs) has got to be Apple, they simply have too much cash on their side. However, in the long term I think its possible that Android’s popularity may sideline them to such an extent that they become an irrelevant niche player...

3 Reasons To Keep Goldman Sachs Around

If there is one company that has really seen its reputation tarnished from the recent economic crisis, its gotta be Goldman Sachs. I’ve always had great respect for high achievers, and over the past decade no company in finance has achieved like Goldman Sachs. But just like Tiger Woods, a lot of that respect has disappeared since the sausage factory was pried open.

Though Goldman Sachs are a pretty dirty company, in a very dirty business, I still think there are 3 good reasons to keep them around:

1. If someones gotta be dirty, it may just as well be the biggest and RICHEST!... As long as capital markets, greed and the promise of quick riches continue to exist, Wall Street will always be around. Its almost guaranteed that really smart people will forever prey on the ignorance of the not-so-smart. With Goldman Sachs we at least have a known enemy, an entity whose pockets are so deep they can be flogged forever!

2. Just like an effective psych ward, they contain the madness... Just try and imagine the devastating effects of unleashing all those Harvard and MIT types out to regular, run-of-the-mill corporations. Enron clones would swamp the land in no time at all.

3. As much as it hurts to admit it, we still need them... As long we have an economic system built on layers and layers of debt, we will always need someone creatively digging new holes. And no matter what their faults are, the evidence still suggests that Goldman Sachs are the best in their trade.

Should Insider Trading Be Legal?

Last week I read a pretty good synopsis on the insider trading trial of hedge fund manager, Raj Rajaratnam, a case I somewhat familiar with but haven’t followed very closely. For those of you who’ve been out of the loop, he is the Sri Lankan-born founder of New York hedge fund company, Galleon Group, a fund that was amongst the world’s largest at its peak with over $7.5 billion in assets under management. The hedge fund collapsed in October 2009 shortly after the arrest of Mr. Rajaratnam, who’s been charged with trading on non-public information for several companies, including Berkshire Hathaway’s $5 billion investment in Goldman Sachs. His alleged crimes netted him a total of $45 million.

The story itself is a pretty boring, plain vanilla tale of a hedge fund manager who probably ran out of ideas on how to legitimately beat the market, so he resorted to cheating. Nothing new... However, this story did get me thinking about whether insider trading itself should just be legalized. After all, what better way to even out the playing field between those in the ropes and those outside the building, than to allow the free movement of stocks in the marketplace based on all information. Based on my brief study, it seems that the benefits of legalized insider trading can be summed in these 3 points:

• The more information available, the more efficient prices become. The buying or selling of stocks by investors based on any kind of factual information would lead to more “correct” prices for those stocks.

• Fraud would get exposed earlier and in real time. The general argument here is that insiders who know of fraud, or as may commonly happen, are the perpetrators of fraud would sell their holdings of affected companies. Investors tracking the activities of insiders would not only know that something is amiss far quicker, but authorities could use this as a possible crime indicator.

• Insider trading happens in the market, its very difficult to prosecute, there are few deterrents against it, so why not just legalize it and thereby reduce the marginal advantages it brings insiders... Gotta admit this is a good point!

Although, I find these points to be pretty compelling, especially the last one, I have come to the conclusion that it would still be a wrong headed move. I think that a purposefully rigged market system, even if done under the strictest controls, would only work to undermine investor confidence over time. After all, if insiders were able to legally trade on information only they knew about, then might it not make sense that they would create information for which to trade on?

What Was Warren Buffett’s Top Lieutenant Thinking?

Last week came news that David Sokol, the ex-CEO of Berkshire Hathaway subsidiaries NetJets and MidAmerican Energy Holdings Company, resigned after revealing that he’d traded shares in a company recently purchased by Berkshire Hathaway. Mr. Sokol first purchased 2,300 shares of Lubrizol the day after a meeting with Citigroup bankers in December 2010, where they presented various companies as potential takeover targets for Berkshire Hathaway (upon his apparent request). He soon thereafter sold those shares, but then purchased 96,060 shares of Lubrizol for approximately $10 million in early January. Approximately one week later Mr. Sokol pitched the idea of acquiring the company to his boss, Warren Buffett, who on March 14, 2011 announced an agreement to purchase Lubrizol for $9.7 billion.

Whether David Sokol’s actions were illegal or not remains to be seen. But the big question on my mind is: WHAT ON EARTH WAS HE THINKING?... I mean, this is a man who by all accounts was on a very short list of possible successors to take over the CEO throne at Berkshire Hathaway (the operations portion of the business at least). He was head of not one, but TWO major Berkshire subsidiaries! And judging from Warren’s own words in his annual shareholder letters, Mr. Sokol seemed to have the full trust and faith of his boss... I just don’t understand why he would throw away the opportunity to manage one of the greatest companies on earth, certainly amongst the most prestigious, for a payday that can only pale in comparison to what might have been?? Maybe I’m just being naive, but I just don’t get it...