Markets Go Up, Markets Go Down, Life Goes On

By Trevor Gilbert , written on April 17, 2012

From The News Desk

Sometimes in the stock market world, prices go down and sometimes prices go up. Unless a company has recently gone public, or if a trend is truly pronounced over a long period of time, the ups and downs of the stock market have little to no impact on the day-to-day operations of the technology industry.

That means that it isn't news. That also means that Apple's stock price going down for the past five days doesn't matter.

Normally, we wouldn't take the time to bore people with the ins-and-outs of the stock market, as very few people actually care about the nuances thereof, and of that group, an even smaller number have any idea what they're talking about. However, in this case, we will make an exception, as talking about the stock price of tech companies has become standard fare for industry blogs in recent months.

Let's break down a few key facts before we continue. Wall Street and Silicon Valley are very, very different places. In fact, in the grand scheme of things, they are essentially antithetical to each other. Wall Street largely focuses on short-terms profits, Silicon Valley largely focuses on innovation. While they are oftentimes connected, that is not always the case.

Following that difference, what Wall Street collectively thinks about technology companies (as illustrated by the trends of the stock market) has nearly no impact on the ability of the companies to perform, and bears no indication on the potential future innovation to come out of the company. Two examples of public companies that Wall Street didn't understand:

  1. Apple in 2004/2005. The stock was undervalued, especially in consideration of the management team in charge at Apple (Steve Jobs, Tim Cook, Phillip Schiller, Ron Johnson) and the fact that Apple had already shown it could do something few other companies could do: build a music player that sold incredibly well.
  2. Google at IPO time. The company clearly was on to something and had an established management team, a standard way of operating, and a product line that extended far into the future. Yet, Wall Street didn't like what they saw and that the large investment firms were slighted, so the share price was undervalued. Now look at Google.
Those are just two examples from the public market. Looking at public perception and the private market, very few people understand the future, and the few that do understand it are normally the ones creating it. Clearly there is a disconnect between the opinions of the masses, and the actual wealth being created and innovation being fostered.

Taking this one step further, it becomes apparent that if Wall Street doesn't understand the long-term vision of companies, what Wall Street thinks about companies on a short-term, daily basis is entirely irrelevant to everyone not trading shares of technology companies. This is because if Wall Street can't understand what motivates technology companies -- long-term innovation, looking out 25 years -- then Wall Street can't really understand the moves that companies are making in the present. Again, the disconnect.

That being said, there is some value to the stock market. Looking at long-term trends in the stock market is normally a good indicator of the competence of the executive team at a company. For example, RIM has been sliding for years, showing that nearly everyone sees RIM as a failing company. Combined with a lackluster vision, it shows a failing company. The inverse is also true for successful companies. That is the value that can be derived from the stock market.

That value, however, is nothing compared to the confusion and misleading signals that the market sends out. In fact, looking at the stock market, one would believe that Google has no plans for the future, and that it is a headless chicken walking around without a clue as to where it is going. This is entirely false, however, Wall Street doesn't seem to understand that Google has been slowly unveiling the future in the form of research into Google Glasses and self-driving cars. (Despite actual execution on the concepts, the long-term company-wide vision is very important.)

This is why it is utterly absurd to look at a five-day slide in the stock market and believe that it means anything. Sure, we like to cling to hard facts and think that statistics paint a clearer picture, but they only paint a picture when statistics have meaning. These statistics don't mean anything to anyone that cares about what happens more than three weeks out.  Wall Street and innovation are living in different realities, and history shows it again and again. Later this year, we will see that the disconnect has reared its head once again.

As of the publishing of this story, it appears that the hubbub over a five-day slide was for nought, as Apple has now shot past $600 per share. Showing what? That the markets mean nothing in the long run.