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Microsoft: "Drive Optimization"
From today's post:
From an investment perspective, owning Microsoft for the past decade or so (and particularly since Nadella took the helm in 2014) has required an ability to think about their likely long-term competitive position across the Cloud businesses, along with high level estimates of how large the opportunity could become over time (on that second part, it didn’t require much more specificity than concluding that they were very large). An investment decision-making process that largely focused on the EPS multiple / FCF yield relative to the valuation Mr. Market previously deemed appropriate would’ve led to a painful financial decision – for example, selling the stock in late 2015 when it became “expensive” at ~20x forward earnings, or ~$55 per share (on Friday, MSFT closed at ~$307 per share, with gains in the interim primarily attributable to earnings growth). There’s a fine line here, but this highlights a real risk associated with becoming a value investor who is obsessively focused on short-term price swings / valuations (the risk on the other end of the spectrum from a “value trap”). In my opinion, that’s an important lesson from Microsoft’s performance over the past decade. (For more on this topic, I’d recommend revisiting “I Don’t Defend This Logic”.)
thescienceofhitting.com
Microsoft: "Drive Optimization"
From “The Ultimate Tailwind” (October 2022): “As I think back on my experience with this investment, it has served as a useful reminder that long-term business results are what ultimately drive outcomes for the stock price (assuming you start and end with a ‘reasonable’ valuation). As I look to the years ahead, I remain as confident as ever that Microsoft is well positioned to help organizations of all shapes and sizes to embark upon their own digital transformation, while being properly compensated for the value that they bring to the relationship. (‘In a world facing increasing headwinds, digital technology is the ultimate tailwind.’) While it won’t be a straight line, I remain convinced that Microsoft will be a
Good Piece.
"There’s a fine line here, but this highlights a real risk associated with becoming a value investor who is obsessively focused on short-term price swings / valuations (the risk on the other end of the spectrum from a “value trap”)."
I consider myself a value investor, but only because I firmly believe all investing is value investing. Valuation can't be ignored, and I would argue the majority of people focusing short-term are likely also not investing, as, most often, an integral component of the value equation comes from a period in the future beyond their lens. With that said, there is also a risk of strictly focusing 1000 yards out and not seeing danger in immediate proximity. Would love to hear you elaborate on the biggest threats facing MSFT and how things could go badly for a company that looks so impregnable.
@devinlasarre Very well put Devin.
I think the biggest risk is technological obsolescence / missing a big change in the industry (see early days of cloud). The other big one, which is tied into the first point, is a culture that shuns adaption in the face of these risks (see Nadella's book about trying to pivot Server & Tools during the late 2000's / early 2010's).
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