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Apple and the Gambler's Fallacy

For reasons that often defy explanation, the news swirling around Apple always tends to be framed in a negative light. Despite Apple's success and unparalleled ability to release hit product after hit product over a multi-year stretch, many in the tech industry would have you believe that Apple's demise is right around the corner.

Horace Dediu this past August touched on this briefly while discussing Apple's share price.

At this point of time, as at all other points of time in the past, no activity by Apple has been seen as sufficient for its survival. Apple has always been priced as a company that is in a perpetual state of free-fall.

Indeed, if you pay any attention to the assortment of pundits, analysts and folks in the mainstream press who get paid to cover Apple, the company has seemingly been on the verge of collapse for years. Rather than seeing Apple's accomplishments as proof positive that it knows what it's doing, Apple's success is often touted as the very reason why it's doomed to flounder in the future. This notion is otherwise referred to as the gambler's fallacy.

The gambler's fallacy is the mistaken belief that past events make the occurrence of a future event statistically less probable. The most common example of this flawed logic is in assuming that flipping two heads in a row on successive coin flips increases the odds that the next flip will yield tails.

We've seen this play out with Apple many times over the past few years.

To that end, here are 10 years' worth of analyst reports about Apple summarized in just a few sentences:

Sure, the iPod was a game-changer, but Apple has nowhere to go now but down. Okay, the iPhone was revolutionary, but there's absolutely no way lightning can strike thrice. Wow, the iPad sure took the tech world by storm, but what are the odds that Apple can come out with yet another game-changing device? Apple's best days are clearly behind it.

The narrative surrounding Apple is typically one of gloom and doom, with news reports often spun in such a way to fit some preconceived conclusion that Apple is destined to fail at any moment.

To wit, here are a few examples detailing how tech pundits and bonehead analysts often try and spin stories about Apple.

  • If Apple doesn't lower prices, its marketshare will take a hit
  • If Apple lowers prices, its margins will take a hit
  • If Apple's quarterly earnings beat on revenue, its profits that matter
  • If Apple's quarterly earnings beat on profits, revenue is what matters
  • If retailers like Walmart begin discounting iPhones, they must not be selling well
  • If Android devices are heavily discounted, it's trouble for Apple ahead

Now, the gambler's fallacy is truly meant to describe events that are inherently random, like the flip of a coin. That said, it's strange that this flawed logic is still applied to Apple when success in the tech world is slightly more ordered than random. In other words, if we take a look at an assortment of tech companies today, one can make reasonably educated guesses as to which are best positioned to drive innovation in the coming years. We can look at each of those companies' product portfolios, their leadership teams and a number of other factors to help paint a more vivid picture about which ones are more likely to thrive in the uber-competitive world of tech.

In Apple's case, the company has billions of dollars in the bank, an impressive product line across the board and an impressive track record of introducing innovative new products and features that have historically set a new bar for others in the industry.

None of this guarantees that Apple's innovation train will continue riding along unabated, but it's enough of a reason to take a "wait and see" approach instead of blindly proclaiming, without rhyme or reason, that Apple's future is doomed simply on account of its past success.



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Apple Analysis

For reasons that often defy explanation, the news swirling around Apple always tends to be framed in a negative light. Despite Apple's...