Apple Stock Price and Dividends

Apple this week announced that it will be paying dividends. This has set off, or re-invigorated, some fascinating debates, at places such as Felix Salmon's wonderful blog, about the connection between dividends and stock prices.

Neither in theory not empirically is the relationship obvious. Yes, as Felix says, "if cash leaves the company and goes right into shareholders' pockets, the value of what's left behind goes down, not up."  If you treat the payment of a dividend as a one-time event, it necessarily reduces the asset side of the balance sheet, thus also reducing the equity side.

Confirming that conclusion through evidence of actual stock price moves is tricky, though, simply because there are always a number of possible explanations for any given price move. But in 1986 the  "Journal of Financial Economics" ran a study that looked at the value of options for stocks that pay dividends, and movements in the prices of those options around the announcement of a coming dividend. It found that a  decline in the value of the underlying stock is implicit in options prices.

Dividend policy over time is another matter. It is intuitively plausible that a track record of paying dividends makes companies attractive, serving as a signal of their health and rewarding ownership with cash.

Apple hardly needs to signal that it is healthy these days. This leaves us with the question of the "reward" value of a cash payment. Without dividends, my reward for owning Apple is supposed to be the higher price, and my right to sell some of my shares to get the cash. Getting dividends is an easier sort of reward. It is as if a pigeon in a Skinner box no longer has to press the lever to get the pellet of grain -- the experimenter hands the pigeon the pellet. I suppose you'd get lazier pigeons, but over time that would become the more popular box, for pigeons with a choice.

Here's a link to a somewhat more sophisticated discussion of the economics of it.

Mike Daisy and the Truth

The big exposé of Apple's practices at that notorious Foxconn factory in China turns out to have been, at least in some large part, fabricated.

Back in January the radio program This American Life, produced by a public radio station in Chicago, ran an excerpt from a one-man show by Mike Daisey. The full one-man show was known as "The Agony and the Ecstasy of Steve Jobs," and it purported to tell the story of Daisey's personal investigation of the way in which iPhones and other iStuffs are manufactured.

The pertinent excerpt that served as an episode of This American Life, titled "Mr Daisey Goes to the Apple Factory," aired in January 6, 2012. It had a huge impact. In podcast form it was downloaded 888,000 times. Heck, Jon Stewart of The Daily Show jumped on board the bandwagon, just ten days after that radio broadcast. [To be clear: Stewart's segment on Foxconn/Apple/China makes no specific reference to Daisey, or to the specific elements in Daisey's story I discuss below.]

Turns out some people were wondering about Daisey's veracity as soon as they heard his tales. One of the wondering ones was Rob Schmitz, the Shanghai-based correspondent for Marketplace, a publication of American Public Media.

Rob Schmitz knew China and knew something about Apple. But he did more than wonder about Daisey, he found and spoke with the Chinese woman who served as Daisey's interpreter on his trip to China. Her name is Li Guifen, although her professional name (when working with westerners) is Cathy Lee.

At any rate, Ms Lee says that some of the key conversations in the monologue, included in the radio excerpt, didn't happen. For example, Daisey claimed to have met and spoken (through his interpreter!) with workers who had been greviously injured by a neurotoxin, N-Hexane, while working on the assembly line.

Schmitz asked her whether she and Daisey had in fact met with workers who met Daisey's description of the injured interviewees. She said simply, No." He followed up, had anybody talked to them about Hexane?  Says that interpreter: "Nobody mentioned the Hexane."

When Daisey was confronted about such matters by Ira Glass, the host of This American Life, he admitted that he had lied to Glass before the broadcast. He has offered various justifications for his lies. In the stage monologue, the original context, they aren't lies he says because that is art. The lies he told to get them on This American Life, persuading Glass that it was all literally true, well, he sounds a bit like Truman Capote who also took liberties with fact in his infamous book, In Cold Blood, which deliberately straddled fiction and non-fiction. But one has to be clear which of those one is doing. The straddling is the problem, not a justification!

Jack Shafer puts it well.

"That would be an ideal subject for a one-man theatrical performance."

From the fact that Daisey stinks one cannot conclude of course that Foxconn, or Apple, are above reproach. Schmitz has been very clear about that. He has been interviewed on this point: Factory Working Conditions.

What Daisey seems to have done is to exaggerate actual problems for dramatic effect.  Let us not sugar coat it: There have been Hexane poisonings in China. And in factories that are part of Apple's supply chain, too. The fact that they weren't at the factory Daisey visited doesn't make them unimportant. Still, it makes his dishonesty, if anything, more culpable than it might have been if it had been made up out of whole cloth. If you're going to expose something because you think in doing so you're making a difference: get it right.

I'll give Schmitz the last word: "From what we know these are rare occurrences in Apple’s supply chain. Life at factories that make Apple products is not all hunky-dory, but the truth is much more complicated than how Daisey’s portrayed the situation."

Final Quote From Isaacson's Bio of Jobs

I've noted in this blog before that biography is a complicated art form. How to even begin telling a life?

With the subject's birth? Or is there some crucial context to set first? or should you, rather, start by talking about what makes this subject worth a biography? how to start doing that?

Isaacson begins with a discussion of "how this book came to be," wherein he discusses Jobs' solicitation of his services a biographer. Jobs began looking for someone to write his life's story only after Jobs became aware that his cancer was terminal. This allows Isaacson both to begin and to end the book with the consciousness of death.

Here is the ending:

He admitted that, as he faced death, he might be overestimating the odds [on a God] out of a desire to believe in an afterlife. "I like to think that something survives after you die," he said. "It's strange to think that you accumulate all this experience, and maybe a little wisdom, and then it just goes away. So I really want to believe that something survives, that maybe your consciousness endures."

He fell silent for a very long time. "But on the other hand, perhaps it's like an on-off switch," he said. "Click! And you're gone."

Then he paused again and smiled slightly. "Maybe that's why I never liked to put on-off switches on Apple devices."