Apple against the Law of Large Numbers

by Erick Diaz

The New York Times:

Here is the rub: Apple is so big, it’s running up against the law of large numbers. Also known as the golden theorem, with a proof attributed to the 17th-century Swiss mathematician Jacob Bernoulli, the law states that a variable will revert to a mean over a large sample of results. In the case of the largest companies, it suggests that high earnings growth and a rapid rise in share price will slow as those companies grow ever larger.

What a nice problem to have. Who would’ve thunk that Apple would ever be in such predicament. This is not really a problem, it’s the result of the obsession Wall Street has with continuous growth and ever growing profits. Take Microsoft for example, they are growing revenue (of course not at a neck-breaking pace), they are a profitable company, and yet their stock is flat. This is because Wall Street wants Microsoft to grow at a big rate every quarter, something that is almost impossible, since they have so much market share in PC’s and Office suites. There is not much room to grow. The same will happen to Google, it’s only natural.

To me, as long as a company is profitable, they’re good. Wall Street thinks otherwise, and this is what puts pressure on companies to do the things we later criticize them for (like assembling products in China or India). But you know what they say, the more you have, the more you want.

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