Sopranos creator David Chase had a little lesson for America’s average Joe stock market investors embeddded in last night’s controversial ending to his eight-year Mafia epic. Millions of Americans, yours truly included, were madly and fruitlessly jabbing at their television remotes last night a little after 10 p.m. Turns out, it wasn’t any kind of technical cable television snafu. It was Chase’s puzzling, even maddening, decision to go out with the soundless image of an all-black screen. Did Tony Soprano finally get what was coming to him after all his butchery and betrayals? Nobody knows — or maybe everybody is now entitled to their own interpretation of what happened last. Chase left his portly, foul-mouthed protagonist sitting in a seedy restaurant booth surrounded by his family with a couple of shady-looking characters who might or might not have been hitmen prowling the aisle.
The immediate negative reaction was so strong, a surge of angry viewers overwhelmed HBO’s web site. Online fan boards were also flooded with mainly negative reaction. But despite the cursing and moaning, the ending did little or nothing to diminish the high ratings and critical acclaim that the show garnered. It’s hard to imagine DVD sales will be much affected by the final 10 seconds of the final show. Today’s wave of criticism may take Chase down a few notches for a time but the series’ enduring achievements remain.
Similarly, if a bit less dramatically, shares of Apple (Symbol:AAPL) tanked today after CEO Steve Jobs took the stage at the company’s developer conference and announced, well, not much at all. After over an hour spent running down new if dull features of an upcoming operating system update (many of which were already known), the master showman had one more thing…would it be an innovation as big as the iPod or even the iPhone. Nope. It was some programming code to let developers write minor applications to run on the iPhone. So then, with the audience rapt in attention, Jobs added he had one last thing: Apple was issuing a version of its Safari web browser for Windows. Thud. Essentially there’s no news of value here for investors but the stock tanked. In fact, expert Mac observer John Gruber estimates that Apple could reap another $75 million a year if Safari is even a little popular on Windows from search engine and toolbar bundling deals. (He also had some great put-downs on the event including: “WDC 2007 feels more like ‘WWDC 2006 2.0’ – the same news, now less vague.”
So why the stock drop? Before the show, news outlets and bloggers were trading in all manner of possible announcements ranging from an updated line of iMac computers to a revamped online service in alliance with Google. Shares of Apple rose from around $110 a few weeks ago to $124 yesterday. Part of the rise was no doubt also due to the impending launch of the iPhone (June 29) but today, some of the froth blew off the anticipation. After opening at $126, the stock finished near $120, a 4% drop on Jobs lackluster speech.
Both results help explain one of the stock market’s enduring puzzles for average investors. Why do stock prices of great companies reporting no news or even good news sometimes decline? Why do prices of crummy companies reporting bad news sometimes rise? It’s all in the expectations. The economist John Maynard Keynes famously compared the stock market to a newspaper’s beauty picking contest. The way to win was not to pick who you thought was most beautiful but who you thought the most other people would think was most beautiful. The same goes for investing, he wrote:
“It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.”
And though short-term expectations may have taken Chase and Jobs down today, it’s got little or nothing to do with how their long-term value will play out. Apple’s still looking good for its iPhone launch and plenty of the millions who followed Tony Soprano will be waiting when Chase unleashes his next creation.