Sign in
Become a MarketWatch member today
Mark Hulbert
Feb. 25, 2011, 12:46 a.m. EST
View all Mark Hulbert "º
"¹ Previous Column
Ominous parallels to market last April
First Take "º
Saudi Arabia steps up again
By Mark Hulbert, MarketWatch
CHAPEL HILL, NC (MarketWatch) "” When it comes to investing in Apple, the 800-pound gorilla in the room is what would happen if and when Steve Jobs passes.
While no one can know in advance how Apple's /quotes/comstock/15*!aapl/quotes/nls/aapl (AAPL 348.16, +5.28, +1.54%) stock would react, chances are good that it will drop by less than many currently fear. And if Apple's stock price nevertheless does react by plunging, that may very well represent a good buying opportunity.
Those at least are the conclusions I drew from reviewing academic research into the impact of CEO deaths at other companies.
This isn't to say that the death of a CEO is a good thing. Far from it.
But the stock market does an impressive job of discounting the consequences of developments that are coming down the pike. So when a CEO's health is as fragile as Steve Jobs', and when that fact is as widely known as is the case among Apple's investors, the negative impact of his passing will "” at least for the most part "” have long since been reflected in the price of the company's stock.
Yukari Kane and Stacey Delo discuss the lack of questions about Steve Jobs at the Apple annual shareholder meeting on Wednesday, where a succession policy proposal was rejected.
This is how efficient markets work, after all. But it's all too easy for investors to overlook this efficiency and mistakenly assume that none of the negative consequences of widely anticipated events are yet reflected in stock prices.
And on such an assumption, it does certainly appear as though Jobs' passing would be a very ominous development indeed.
Consider a study conducted several years ago into the impact of CEO deaths, entitled "Do CEOs Matter?" Its authors, Morten Bennedson of the Copenhagen Business School, Francisco Perez-Gonzalez of Stanford University, and Daniel Wolfenzon of Columbia University, found that, on average, a CEO's passing leads to reduced corporate performance, as measured by profitability, asset growth and sales growth. They conclude that "our findings demonstrate CEOs are extremely important for firms' prospects." (Read full study.)
But, Professor Wolfenzon told me when we spoke earlier this week, it is "quite unlikely that, in Apple's case, the market hasn't already discounted much of the negative impact of Jobs' eventual departure, if not most."
To be sure, he added, the market won't have completely discounted his death, since no one knows when it will occur. But to the extent the market behaves rationally, the price drop immediately following his death will "largely reflect just the resolution of that uncertainty about when."
What would it mean if the market doesn't behave rationally, and Apple's stock drops by more than this? In that event, the stock would represent good long-term value.
Couching the issue in this way doesn't resolve all the challenges that Apple's investors will face when and if Jobs passes. But at least it helps us to ask the right questions.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now.
The desert kingdom boosts output and slaps a psychological patch on the oil market but deeper issues remain.
3:19 p.m. Feb. 25, 2011
"Mark Hulbert: The impact of CEO deaths http://on.mktw.net/gAkNp6" 1:34 a.m. EST, Feb. 25, 2011 from MktwHulbert
"Mark Hulbert: Ominous parallels to market last April http://on.mktw.net/ffvSUN" 12:50 a.m. EST, Feb. 23, 2011 from MktwHulbert
"Mark Hulbert: A contrarian analysis of the gold market http://on.mktw.net/gQfAlD" 12:22 a.m. EST, Feb. 22, 2011 from MktwHulbert
"Mark Hulbert: Bullish sentiment is high "” maybe too high http://on.mktw.net/fQ0CIQ" 12:02 a.m. EST, Feb. 15, 2011 from MktwHulbert
"Mark Hulbert: Investing without making any forecasts http://on.mktw.net/f8NqfY" 12:44 a.m. EST, Feb. 11, 2011 from MktwHulbert
On the Markets
Apple and the impact of CEO deaths
On Mutual Funds
Somebody doesn't like Sara Lee
Money and Power
Oil prices will slow but not halt growth
Consumer Confidential
Are you better off due to the CARD act?
Ethics Monitor
Beware: The world's riskiest countries
The Big Picture
Oil, Mideast still stump U.S. 30 years later
Read Full Article »