Steve Jobs Creates Value

Steve Jobs is good at creating
value. Seems he has done it his
entire life.

In his 20s, he co-founded Apple
Computer. This made him a
millionaire.

In his 30s, he took control of
Pixar and turned it into an
animation studio. This made
him a billionaire.

Seems that this guy knows how
to create value.

Perhaps it is his ability to
recognize what it is that people
really need and want that makes
him so successful.

Take the iPod as an example.

Other people seemed to have thought
they were selling MP3 players.

Jobs understood he was selling an
easy way to download and play music.

That's a huge difference. An MP3
player is a technology. An easy way
to play your music, on the other hand,
is a timeless ideal.

People will always want an easy way
to play their music. Always.

Selling MP3 players, on the other hand,
basically leaves it up to the consumer
to put it all together.

With the launch of the iPod and the iTunes
store, Apple made it very very easy to
download and play music.

Easier than any other way.

A prime example of Steve Jobs genius is
that he has resisted all attempts by
outsiders to introduce variable pricing
at the iTunes store.

There's much wisdom in this. Making every
song 99 cents means that you never have to
wonder how much you are paying. Everything
costs the same thing.

It liberates you to think only about whether
or not you like a song, not how much it costs.

Also, it liberates you to buy the song right away
because you know it is not going to be selling
at a discount later.

Other people who sell music online do not seem
to fully appreciate the value of such simplicity.

Maybe they do now. However, they were not as
quick to understand as Steve Jobs was.

More later,

Ed Abbott

True Value Investing

This is the first post of
a new blog.

Something I've always been
fascinated by is underlying
value.

Call it intrinsic value or
inherent value but there is
something alluring about value
that does not go away or takes
a long time to go away.

Take gold, for example. Gold
has intrinsic value. Gold was
valuable one thousand years ago
and it will be valuable one
thousand years from now.

That's one way to judge intrinsic
value. How long has it been
valuable? How long will it
remain valuable?

Shoreline property is an example of
something that has intrinsic value.

The shores near the the mouth of
the Hudson River were probably quite
valuable to the Native Americans
one thousand years ago. One thousand
years from now, shore property at the
mouth of the Hudson will probably remain
valuable.

In value investing, it pays to look at
the intrinsic value of something. Is
this thing going away? Is that thing
going to last?

This can be tricky. Photographs will,
in all probibility, be here 100 years
from now just as photographs were here
100 years ago.

But what about chemical photographs?
What about photographs that derive from
a dark room process. I'm not so sure.

One of the keys to value investing is
making sure you know what it is that
people value.

In the case of photographs, it is the
end result and not that process that
people care about.

Your three-year-old niece looks just
as cute in a digital photograph as she
does in a photo-chemical photograph.

Perhaps this explains the current demise
of Eastman Kodak. A quick glance at a
five-year chart is pretty horrifying.

Seems they saw themselves as being in
the photo-chemical business rather than
being in the photo business.

In other words, they might have done better
if they had been a little more focused on
the end result.

Same could be said of passenger trains in
the 1950s.

If they had viewed themselves as being in the
transportation business rather than the
train business, they might have started buying
airplanes in the 1950s.

Perhaps this would have made sense as it really
doesn't matter how you transport people as long
as you get them there.

That is to say, it doesn't matter in the big
big picture.

Of course, the railroads might have had problems
with anti-trust regulations had they started investing
in airplanes. I don't know enough to say.

Come to think about it, the movie business had the
same problem in the 1950s. Thought they were in
the movie business rather than the entertainment
business. Thus, they were highly resistant to
television.

This blog post is inspired by a friend who sent me
the following article via email:

Gold: The Ultimate Un-Bubble

Interesting article. Discusses the possibility that
the price of gold is never really and truly a bubble.

Rather, it seems, it is everything else that bubbles
while gold remains relatively range-bound in price if
you discount for inflation.

I think there is something to this premise.

No doubt about. Gold has a way of keeping its intrinsic
value, regardless of what people say about.

Of course the price fluctuates. However, that fluctuation
is extremely range-bound, especially when you discount for
inflation.

By range-bound, I mean the value never seems to go up
by more than 4-times or so. Something like that.

As for loss of value, it never seems to lose more than
75 percent of its value over time.

To some people, that might sound like a tremendous
fluctuation in price, but it is not.

You could go into a state of frozen animation for 100 years,
come back to full life, and your gold would still be worth
approximately what it was when you left.

For many people, gold is more of an inflation hedge
than an investment.

Ed Abbott