Apple Inc. (NASDAQ:AAPL) in a legal dispute? There is virtually no day that goes by in which there is a courtroom somewhere in the world that a lawyer (or flock of them – or is it pack, or pride?) isn’t representing Apple in some legal case. In our daily Apple watch here in the Insider Monkey newsroom, we bring you the latest on an important case involving Apple, e-books and somewhat indirectly, Amazon.com, Inc. (NASDAQ:AMZN).
Apple Inc. (NASDAQ:AAPL) v Amazon.com, Inc. (NASDAQ:AMZN): DOJ as a Proxy?
OK, so Apple Inc. (NASDAQ:AAPL) is actually up against the U.S. Department of Justice in that e-book price-fixing trial, of which Apple was found liable for anti-trust violations and was found to have “conspired” to elevate prices in the e-book market.
But let’s face it – this is about Amazon.com, Inc. (NASDAQ:AMZN), the dominant e-book retailer in the world, thanks to its very low prices for e-books. Brian Fung of the Washington Post (now a Jeff Bezos property, after the recent news that the Amazon.com chief bought the paper; how might this affect how this story is covered?) gave a preview of what we might expect at Friday’s hearing.
Friday, the federal judge who presided over the DOJ’s case against Apple is expected to hear arguments about a proper punishment for Apple for its price-fixing scheme. However, Apple lawyers already seem to have an appeal typed up ready to submit, essentially claiming that this is a witch hunt and that Amazon.com Inc. (NASDAQ:AMZN) has been the company that has been suppressing competition by offering e-books at prices which other retailers have a difficult time matching.
The main thrust of Apple’s argument is that first of all, the DOJ did not prove that there was an actual conspiracy between Apple and the five publishers – in that Apple – headed in the e-book negotiation process by senior executive Eddy Cue – was not the “ring leader” and actually brought all the publishers together; and second, that what Apple did by encouraging an “agency” pricing model was to increase competition in the e-book space, not limit it.
Antitrust Law in a Nutshell
After all, that is supposed to be the heart of anti-trust law – to discourage monopolies and encourage competition in the marketplace. Apple Inc. (NASDAQ:AAPL) likely will make the case that Amazon.com, Inc. (NASDAQ:AMZN) has a virtual monopoly in the e-book market, and to annul the deals between Apple and the publishing houses would ensure that the monopoly not only continues to exist, but may actually grow even more than the 90-percent share it owned in 2010, just before the “agency” pricing model – where the publishers dictate the retail price of e-books and not the retailers – went into effect. Since 2010, Amazon.com, Inc. (NASDAQ:AMZN) market share dropped to about 70 percent, with Barnes & Noble Inc. (NYSE:BKS) taking up about 20 percent. The Apple e-book store, by the way, has always been in single-figures.
Will the Punishment Fit the Crime?
According to antitrust lawyer Ankur Kapoor, the DOJ may push hard to get the judge to impose a five-year ban on Apple Inc. (NASDAQ:AAPL) making any e-book deals with any publishers, which would give Amazon.com, Inc. (NASDAQ:AMZN) and other retailers an open opportunity to reach their own deals to sell e-books without Apple’s participation in the marketplace. Not only that, Kapoor said there is a chance that the DOJ might call for at least a temporary injuction against the agency pricing model, which would then give market leader Amazon.com the chance to restore its e-book pricing to $9.99 or less – a price that has proven to be untenable for many other retailers, including Barnes & Noble Inc. (NYSE:BKS).
What are your thoughts about this case, and how do you think the result will affect investors like fund managers invested in either Apple or Amazon.com, like Jim Chanos, Ken Fisher, David Einhorn or Philippe Laffont? If you want to learn more in a nutshell, check out the video below about this case, summarized by Dominic Chu of Bloomberg Television.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
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Wall Street Legend Warns: “A Strange Day Is Coming to America”
“A massive and surprising new transition could determine the next group of millionaires,” says Chaikin, who predicted the 2020 market crash. “While leaving 99% of the public worse off than before.”
“If you own regular stocks, you’re in for a big surprise,” he adds.
“I grew up in a world where you could do extremely well by investing in ordinary companies,” Chaikin says. “It’s how I spent the majority of my 50-year career on Wall Street.
