There's a new book out on BlackBerry (BBRY) called Losing the Signal. I listened to an interview with the authors this morning.
It prompted me to go back and see where the stocks prices of Apple (AAPL) and BlackBerry were on Jan. 9, 2007. I realized that, since that intro, Apple's stock price has increased by 10x, while BlackBerry's has declined 93%.
Some would say that was a no-brainer "pairs trade." Except it wasn't -- at least not until maybe 2011, when I recall it gaining popularity. In fact, BlackBerry's stock hit an all-time high on market cap of $120 billion in July 2007 -- six months after the iPhone introduction.
So there are many lessons to be learned from this pairs trade:
-- It's very easy not to realize how big some cataclysmic product is going to be when it first drops in our lap. It seems obvious now that the iPhone started a mobile revolution, but there were many doubters at the time. This leads to the second point...
-- It's very easy to overestimate the power of current market leaders. BlackBerry had won the enterprise customers. Its services revenue was lucrative. The iPhone seemed like a toy to many. The iPhone would use up all the carriers' spectrum. The price was too high. There were an abundance of reasons to doubt the iPhone would be adopted.
-- The iPhone was the right product from the right company at the right time. Mobile was just about to take off. We didn't know that in 2007, but Apple did. It got its product out there and then iterated. We trusted Apple to get it right over time. We were willing to accept it in the early days when the experience wasn't perfect. It reminds me of people complaining about the Apple Watch today. Or asking why Apple isn't coming out with an electric car yet. Apple obviously believes the timing is now right for a watch, but not yet for a car.
-- Old ways of doing business tie up our mental models from seeing what could be possible. Part of the reason few people were willing to go long on Apple right away and short BlackBerry was because we understood the phone business to work in a certain way. Carriers were strong. Handset makers were weak. We believed it had always been like that and would always stay like that. We couldn't imagine that Apple would use its AT&T relationship as leverage to get other carriers to capitulate. We kept saying, "That can't happen, because it's always been done this way."
-- It takes time for a thesis to play out and it's tough to stick with it while the stock market gyrates day after day. Even if you believed the "Jesus phone," as the iPhone was called then, was going to revolutionize the world, you looked pretty stupid for the first seven months after the product was introduced, according to the stock prices of BlackBerry and Apple. Then there was the 2008 crisis. Did you stick with the trade or get distracted by the potential ending of the world? It's very easy to lose sight of the long-term goals in the heat of the battle.
-- It's tough for old companies to adapt to changes in market dynamics. Consider this: One of the smartest responses to the introduction of the iPhone was Google's (GOOGL). It had been working on a BlackBerry-copycat version of Android. Google quickly changed tack to copy the iPhone. It ended up selling all the low-end phones in the market previously sold by Nokia (NOK). It was successful in gaining adoption. Yet, since the iPhone introduction date, Apple's stock is up 989% and Google's is up 121%, barely more than the Nasdaq, which is up 111%. Google has merely treaded water since 2007 with the market. All credit seems to go to the market victors, not the market also-rans.