You want your stock higher? Be as transparent as possible. I know the cliché seems overdone, that plenty of CEOs who make opaque presentations claim to be transparent.
But today we saw a triumph of actual transparency at work and it's worth explaining what's real transparency because, believe me, we've seen a lot more faux transparency as well as misdirection plays that have sent investors in the wrong direction.
What does the real deal look like?
Let's start with the most remarkable company of all time, Apple (AAPL) . Do you know that back in November of 2018 Apple changed the way it reported. The company would no longer break out sales for iPhones, Mac and iPods. Why? "A unit of sale is less relevant today than it was in in our past," the Apple CFO Luca Maestri said at the time. He added that the number of units sold doesn't really represent the relative health of the products underlying business.
The reaction was instant. Apple was no longer going to be transparent because the Apple iPhone growth is a thing of the past. Why else not break the sales out? You wouldn't hide those figures unless things were rotten and were going to stay rotten. The company had a burgeoning service revenue stream, the bulls said, so even if the iPhone's dead the company will be okay,
The stock collapsed, falling from $222 to $140 when the so-called truth came out: Apple had a monstrous shortfall because of a huge decline in the China business. No wonder the company decided to go all opaque. It knew the end was nigh. The preannouncement meant that Apple was no longer a growth company. Its best times really were behind it.
A few days later I went out to see CEO Tim Cook to get a sense of what was going on. Cook said that he'd never felt better about the company. Cook said he wasn't surprised by the drop because the market's emotional in the short term. But, he said, the product pipeline has "never been better," and the "ecosystem has never been stronger." While Tim never, as a policy reveals what's next, he did make it clear that I would be dazzled.
I was, so was everyone else. The 11 iPhone in the pipeline, the one that was supposed to be lacking in anything of real note, turned out to be perhaps the greatest blockbuster of all time. Why? Listen to what Tim Cook told me: " We sort of got a number of things right with it, the product is incredible. People love the battery life, they love the camera. They love the industrial decline, the battery lasts all day."
How great is it? How about this a portrait of my wife, Lisa "hashtag shot on iPhone 11." I am one of hundreds of people who sent Tim Cook pictures that look like they were shot by Eisentaedt, Leibovitz and Arbus.
Of all of the incredible things about this call, though? The amazing growth of the iPhone itself, the thing that's responsible for the amazing surge in today's stock, one that has lifted it up more than 115% since the panic low. There was nothing opaque at all when they changed the way they reported. The pricing plans truly did make units worthless as a method of prediction. There was no decision to hide weakness in order to show off services. In fact when you consider the extraordinary demand for the supply-constrained Airpod Pro as well as the watch, the one line item not up to some wags' snuff was services which came in with 16% growth when some were looking for 17%.
The conclusion? If you thought the most transparent company on earth had resorted to opaque methods to hide negative news, you couldn't have been more wrong. Did you know to buy it? Yes, if you adopted my own it, don't trade Apple philosophy. Or if you were Luca Maestri, who buys back stock when it is low with both hands, hence the fact that that the company's bought back $325 billion dollars worth of shares which is about 40% of the shares outstanding with an average price of $129. Obviously most of the stock was bought before the nadir in January of 2019 when Tim told us about all of the great things to come, but Maestri was in there buying all along. When I was listening to the Fed Chief Jay Powell talk about the size of the Treasury buy program I realized that Apple's playing with numbers that are actually the size of what the Fed does. How do I know? Because the company is so darned transparent.
Who else has embraced radical transparency? How about General Electric (GE) . Here's a company that seemed hellbent to obscure every single weak portion of its business which, in the end of a regime two CEOs ago, was every single part of the business. I only took a year of accounting but could tell you one thing about GE's accounting: it smacked more of fiction than of fact. There was simply no way you could understand how the company was doing and it made you sick to your stomach that anyone, the board, the auditors, shareholders checked off on this legerdemain.
So what happens? You get a guy who comes in, Larry Culp, who comes from a traditional industrial background and he realizes like everyone else but the people who put together GE's financials that you needed to be an alchemist to figure out how it was doing. Culp pulled things apart and discovered that things were really wanting. You know what he did when he found out? He told us. He told us everything. It was incredibly dispiriting how bad things really were.
Culp didn't care. He's about transparency. And when a forensic sage wrote a 175 page report about how the numbers were crooked, what did Culp do? He bought about $2 million in stock at $7 and change, where the stock fell from what Culp called "market manipulation pure and simple."
I don't know who that sage was working for but they got blasted plain and simple because Culp was already working on a plan to right the ship. Today the company's stock jumped 10%. Why? One, because it was an upside surprise. Two, because the results actually looked like the results you would get from a real live industrial. Oh, and Culp's up five on the $2 million in stock that he bought. He's about as transparent as they get.
Final transparency? It's a riddle, what company reported a hideous loss, first in ages, and saw its stock soar today? The answer? Boeing (BA) ? Why? Because the company no longer offered bogus reassurance about the 737-Max. Because it no longer tried to tell the critics to shut up. Because it gave you cold hard numbers like the fact that the backlog hasn't gone down. But it also told you that it didn't know when the plane would be back in the air. That would be up to the authorities. All it could do was make the plane as safe as possible. Not market the plane. Not over promise. Just a simple: this plane will fly when the regulators bless it and it's the safest plane ever flown.
Sometimes transparency means that you have to admit what no one wants to admit, that this fiasco is costing billions and billions of dollars, ten billion minimum because it should cost ten billion, because that's the price the company has to pay to make this darned thing right, and there will be more spent before this is over.
Who would ever think that it would be a relief to hear about gigantic losses and unknowns about when the plane will fly? Another good riddle. The answer: the shareholders who were tired of hearing the hubris and the bogus certainty of the previous regime. The actors had left the stage: the real, transparent business people are now in charge.
The moral of the story? We want the truth. When we get the truth we must recognize it for what it is. Or we will miss buying the stocks of companies who know that being opaque is the worst possible strategy when you want your stock to go higher.