Apple's Effects on Competitors

What a wonderful company Apple is. Who else can you turn to for virtually all of your Christmas presents? From iMacs to Macbooks to iPods, plus all the third-party complementary products, the possibilities for great gifts are unending.

But the topic of the evening is profiting from induced changes in competitors' market values.

S. Jobs announced this past week the new iPhone from Apple (so long as it works on Verizon, I see several such phones in my family's future).

Apple's share price increased by 8.3% on the day. This is pretty amazing, given that the market was expecting a big announcement. Apple clearly surpassed expectations.

But who should suffer from Apple's mobile phone innovation? Two companies that should be hurt by Apple's perceived successful entry into the mobile phone market, in terms of revenues, profitability and value, are Palm and Research in Motion (makers of the Blackberry). Palm fell by 6%. Research in Motion fell by 7.9%.

Now Apple officers trading in Apple shares would clearly violate insider trading laws as the officers of Apple owe a fiduciary duty to Apple shareholders. But that legal argument does not apply to Apple officers, or Apple itself, trading in the shares of Palm or Research in Motion. No fiduciary duty owed there, and mere trading on proprietary information is clearly not illegal. In fact, one could argue that Apple created and owns the information on its innovation, so why can't it trade on it?

Wouldn't it have been a great trade to sell short Palm or Research in Motion, if you knew just what S. Jobs was going to do at MacWorld? And guess what -- for an Apple employee to do such a trade would not be illegal (to the best of my knowledge that is, and I do note that it could violate Apple corporate policy). Perhaps the best idea would have been for Apple's corporate pension fund to have sold short shares in competitors prior to the conference. Not only would Apple make money from the entry into the mobile phone market, but it would also make a fortune from the decline in fortunes of its competitors!