The last time Apple ran into serious trouble, co-founder Steve Jobs was there to
save it. But now, the stock is crashing back to levels not seen since the
company's visionary leader died.
Shares of Apple continued their vicious crash Thursday, falling $10.75 to close
at $392.05. They're less than 4% away from cutting through Apple's $378.25 price
on Oct. 5, 2011, the day former CEO Jobs died.
The Apple stock crash is reaching a historic order of magnitude, shaking the
faith of investors who piled on in large part on Jobs' showmanship. Shares are
down 44% from the closing high of $702.10 on Sept. 19, 2012. This crash has
obliterated $291.2 billion in shareholder wealth, exceeding the market value of
Google and Microsoft individually and nearly five times the market value of
Facebook.
The rapid come-uppance for Apple and its investors is a big reminder that the
company, especially lacking the leadership of its CEO and top salesman, Steve
Jobs, is "becoming just another stock," says Frank Longman, analyst at Brean
Capital. "The phenomenon is unwinding."
But while Apple is only now getting back to the point it was at when Jobs died,
the fact is that having a sick or dying CEO is generally a big problem right
away for stocks. Research has shown:
--Announcements of medical leaves are a negative. On average, companies that
have announced the medical leave of absence of a top officer suffer a 2% hit the
day of the news, says Sara Holland, professor of finance at the University of
Georgia. Declines are even larger when a CEO leaves due to a long-term or
chronic illness and eventually dies.
--There can be long-term problems when a CEO is sick. During the time that top
managers are sick, the companies often pull back on research and development
spending, potentially starving future innovation, Holland says. This happens in
some cases because the CEOs know they might not be alive to steward the project,
Holland says.
--The death of a CEO is a big negative. CEO deaths aren't as uncommon as some
might think. They happen on average seven times a year at publicly traded
companies, says research co-authored by David Larcker and Brian Tayan of
Stanford University. One of the biggest negative reactions occurred when Mark
Hughes of vitamin seller Herbalife died on May 21, 2000, and the stock fell 12%.
Most recently, shares of chipmaker Micron Technologies fell 2.8% the day its
CEO, Steve Appleton, died in 2012.
And so Apple is dealing with what many firms face when their CEOs fall ill or
die, short-term shock that turns into long-term disappointment. "It's not just a
short-term reaction, but a (cause) of long-term declines in stock prices," says
Ugur Lel, finance professor at Virginia Tech.
