Bubbles to Business

Even though Floyd and family are basking in a quiet island paradise this week and you will NOT be receiving daily alerts with his commentary, I could not help but to allow my weekly rambles. So, first, on bubbles:


The New Life Cycles of a Company

Dr. Adizes is one of the world's leading experts on organizational performance and change. TEGLLC, the parent company that owns OEX and BCO Options is a full service consulting company that has used his seven- step cycle of how an organization performs in various stages in all of our business development and restructuring programs.

With "bubbles" to business becoming more frequent, note that they follow the same predictable cycle. With a "bubble" (Internet, social networking, etc.), however, and there are four (4) stages:

1. Conceptual Stage- In a bubble companies are formed and consumers show high interest in the product or service.
Recent examples of “bubble euphoria” are Facebook, Pandora, Linked In, and the variety of social networking platforms.
In the latter portion of the conceptual stage users begin to truly accept the new technology. They incorporate the technology into their daily life and become avid users as well as often becoming "evangelists" for the technology.

2. Hypergrowth Stage-By now consumers are fully on board and investors begin to take notice. Here is where IPO's are hatched, and the money raised is then plowed into new growth initiatives. Here's where investors can make the most money, and also the period where skeptics are the most vocal.

3. Maturation Stage-This is when companies begin to see market saturation and growth levels out. Profit growth does not contract, but growth levels turn to more normal rates of return. Companies are actually more stable at this stage, but it's more dangerous in investing as stocks are trading with high multiples while growth is much slower than it has been in the past.
This is the bubble. Investors typically pay premium prices for non-premium stocks.

4. Contraction/Completion Stage-During this final stage pure cutthroat capitalism comes into play. Prices are driven lower, and profit margins are crimped. Now investors begin to realize that they are paying a premium price for a not-so-premium company. This is the period where we see earnings expectations drop and price multiples decline, and where we see more investors "fight" that this is occurring and lose all of their gains.


One Question: The stock you own in the bubble: What stage is it at?

Traders were able to sell their January 2013 AAPL Call for between 40% and 80%.
When we first bought this long-term call AAPL dropped 23.4%. Many traders doubled their position, and our recommendation. If they held thru July 20th their returns were between 40 and 80%.

For any of you that own a Microsoft based product as compared to Apple I would love to know what it does that an Apple cannot do? I wonder when companies receive 91% positive consumer rankings, as Apple does, while Microsoft receives a 31% rating, why someone would not change?
It is much like question of “what is in the Constitution”? How many of us have actually read it? This clearly relates to illogic, the Floydian defined condition where despite facts nothing changes. People misinterpret the obvious, believe it is real, and defend a position.
Pee partiers come to mind.

We need not fear that China will pull up its’ stakes in our debt. They are our largest single creditor, are fearful of what we do but have little choice but to buy, continue to buy, hold, and grumble. This is the ultimate “too big to fail” global relationship.