Even With All Its Profits, Microsoft Has a Popularity Problem
Photo Illustration by The New York Times By RANDALL STROSS Published: July 24, 2010
MEASURED by profits, Microsoft trounces Apple and Google. In the most recent three months, Microsoft earned $4.52 billion, versus Apple’s $3.25 billion and Google’s $1.8 billion. But, dear investors, where is the love for this beaten-down company? Apple Inc Microsoft Corp Google Inc
Frank X. Shaw, Microsoft’s vice president for corporate communications, recently tried a new tack to win respect. In a blog post on June 25 titled “Microsoft by the Numbers,” he compared Microsoft’s record in various business categories with that of competitors.
Unfortunately, by trying to argue that Microsoft is doing well in all areas, including those dominated by Apple and Google, Mr. Shaw fails to show Microsoft at its best. Lost from view is what arguably is Microsoft’s very best story — its transformation into a powerhouse supplier of the specialized software that meets the complex needs of large corporations, what the trade calls selling to “the enterprise.”
Microsoft’s enterprise software business alone is approaching the size of Oracle. But despite that astounding growth, Microsoft must accept that, fair or not, victories on the enterprise side draw about as much attention as being the No. 1 wholesale seller of plumbing supplies. Microsoft won’t receive the adoring attention that its chief rival draws with products like the iPad.
In a conversation earlier this month, Mr. Shaw explained what prompted him to write his post. “I noticed some pretty critical conversations going on in the technosphere among the technorati,” he said. “There’s a gap between that conversation — ‘the company is not doing well, period’ — and what the company is actually doing.”
In the blog, he writes, “With Windows 7, Office 2010, Bing, Xbox 360, Kinect, Windows Phone 7, in our cloud platform, and many other products, services and happy customers, 2010 is shaping up as a huge year for us.”
By encompassing just about every product category under the sun — and then calling out Apple and Google, of all targets — Mr. Shaw draws attention to Microsoft’s weak spots.
Bing, its search engine, attracted 21.4 million new users in one year, Mr. Shaw says. Very well, but he does not mention the following: in 2007, the company’s online services group lost $604 million; in 2008, $1.2 billion; and in 2009, the year of Bing’s introduction, $2.25 billion.
Mr. Shaw also points out that in its 2000 fiscal year, Microsoft’s revenue was $23 billion, and that it grew to $58.4 billion by 2009. He does not, however, go on to compare this growth with that of Apple and Google, whom he had just called upon to illustrate another point. But let’s call Apple back to the stage: from 2000 to 2009, when Microsoft’s revenue grew 153 percent, Apple’s grew 436 percent. (Google’s number, beginning from a tiny base in 2000, is too large for use as a fair comparison.)
Perhaps the most important numbers that Mr. Shaw did not include — the numbers that go a long way toward explaining the we-don’t-get-no-respect tone in his post — reflect the judgments of investors. Microsoft continues to suffer through its very own lost decade. On Thursday, Microsoft reported its strong quarterly earnings. But at the close on Friday, Microsoft’s stock was 55 percent below its price at the beginning of January 2000.
Apple also reported its quarterly results last week: the most Macs sold, ever; more than three million iPads sold — and its stock is now at $260, or 829 percent above its January 2000 price.
“Tech investors pay for growth,” says Sarah Friar, an analyst at Goldman Sachs, who believes that those investors do not appreciate the durability of Microsoft’s cash cows, Windows and Office. She has many positive things to say about Microsoft’s ability to innovate, pointing in particular to the robust sales of server and database software, which are now almost equal in size to Windows revenue.
Ms. Friar views Microsoft as a company that primarily sells to the enterprise. By contrast, Apple and Google are primarily selling to consumers. “How many companies are good at being an enterprise company and a consumer company at the same time?” she asks.
BRENDAN BARNICLE, a software analyst at Pacific Crest Securities, offers one explanation why Microsoft stubbornly believes it can sell to consumers as well as to corporate customers: Microsoft was able to do so in its early years, when its operating system software and then its Office productivity suite were bought by individuals as well as companies.
“Microsoft is used to having it all,” he says.
Mr. Barnicle is bullish on Microsoft stock, partly because he thinks the company hasn’t received credit for its almost-half-full glass: the 40 percent of its business that is not Windows or Office. He, too, praised its enterprise software business, formally labeled “Server and Tools,” as “an incredible business,” accounting, he said, for about 24 percent of the company’s revenue and with an operating margin of 40 percent.
Mr. Shaw points to the 150 million Windows 7 licenses sold in the eight months after its release last year. It’s an impressive figure; Macs, iPhones and iPads have a long way to go to catch up. But those Windows 7 sales include pent-up corporate demand for anything-but-Windows-Vista. So that figure doesn’t give investors what they want most: portents of entirely new growth.
Randall Stross is an author based in Silicon Valley and a professor of business at San Jose State University. E-mail: stross@nytimes.com. A version of this article appeared in print on July 25, 2010, on page BU3 of the New York edition.
Overall Market:
Currently the market (DJI) is sitting at 10213.62. The Dow Jones has a longer-term resistance at 10440 and a shorter-term resistance at 10267. While many of you have sent e-mails stating we were spot on with the down turn, as we outlined in last week’s educational article, the downward spiral of the market has only yet begun. It is of our opinion based on our proprietary indicators and system that this market is poised for a major downturn. We anticipate that we will see the DJI drop to at least 9600. Once it snaps that level, our analysis indicates the market going much lower.
Shifting over to the S&P 500, we also see that it is preparing for a continued downward spiral. Friday it closed at 1071.69 and is just beginning to pick up steam to head further south. The key points to watch short-term are 1100 as a resistance point and 1067 for support. Our interpretation of the charts indicates that it will break 1067 in the early part of this week and rapidly break below 1010 if not further south.
Keep your ear to the ground and stay in tune with the sentiment of the market. Our perspective remains bearish and we believe that we will begin to see a shift from the media heads going from what they were touting as a market recovery to one of weakness in the overall economy. Once the smoke clears and investors realize that the economy is not only stalling but also shrinking, the markets will fall quite rapidly. Technically speaking, we are already seeing this shift occur and it will become quite obvious in the coming weeks and months.
Trade Well,
Dinger
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Trade Well,
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Keep in mind that all trades listed are for educational purposes and not to be construed as recommendations. You MUST do your own homework on any investment and understand the risks involved….otherwise, do not trade.
By Catherine Holahan
MSN Money
Now is the time to buy stocks — if you’re Warren Buffett, with his iron stomach, ability to score deals and billions in the bank. But you’re not Buffett. And you’re shying away from stocks until a ride on the Dow industrials ($INDU) feels a bit less like a roller coaster.
So, what do you do with your money in the interim?
Treasury bills are unattractive. The 2.78% annual return on 10-year Treasurys likely won’t keep pace with inflation, which was nearly 4% last year.
And, though real estate may look cheap right now, it is still a very risky business, given the amount of unsold homes out there.
MSN Money asked money managers and found five nonstock investments that seem attractive. Mind you, just because these investments are not stocks doesn’t mean they’re without risk. Yet they look like stable bets compared with stocks, which have set records for volatility in recent months.
Buy junk
Bonds seem less risky than equities at the moment. Bond investors can be wiped out if a company goes bankrupt, but they’re paid, before stockholders, a share of whatever assets remain. Bonds don’t have the potential to exponentially increase returns like stocks, but few stocks seem capable of delivering significant gains this year.
High-yield bonds — aka junk — offer the most potential. Many investors have fled junk bonds because they have a greater risk of default than higher-rated bonds, but junk also offers a potentially higher rate of return.
Because the credit crunch has also made it more difficult for companies to issue bonds of any sort, as investors have shied away from risk. As a result, junk-bond prices — which fall as yields on those bonds rise — look artificially depressed, and individual investors are starting to notice.
“A very high proportion of the high-yield market is already trading at distressed levels,” says Mariarosa Verde, a Fitch analyst. “Some investors may find the risk-reward balance attractive at this point.”
Investors have poured nearly $3.5 billion into junk bonds since the beginning of 2009, according to EPFR Global, which tracks the market for funds trading in that $850 billion sector.
“I think people are scared, and they figure, ‘Why be greedy and buy the equity and take huge risk?’” said Zachary Cooper, a portfolio manager in New York who specializes in fixed income. “People believe they are getting a historically equitylike yield Many are calling the past 10 years in the stock market a ‘lost decade,’ but Tim Middleton has a different perspective.
Of all junk bonds, high-yield municipal bonds appear most promising, certified financial planner Andrew Horowitz says. Municipalities across the country have issued bonds because their tax revenues are down, in part, due to mortgage defaults. The $787 billion federal stimulus package should give these local governments an infusion of cash, making defaults on these bonds less likely.
For investors who don’t want to pick through the trash of individual junk bonds, exchange-traded funds holding high-yield bonds are another opportunity. ETFs are funds that track a particular index or sector and are popular partly because they can give investors the ability to trade a group of different companies’ shares as if they were a single stock.
This month, Van Eck Global of New York launched the Market Vectors High-Yield Municipal Index ETF (HYD, news, msgs), pegged to the performance of the Barclays Capital Municipal Custom High Yield Composite Index. About a fourth of the index is made up of investment-grade triple-B bonds. The other three-fourths are composed of non-investment-grade bonds.
Buy food
No matter how low the market goes, people have to eat. That is Horowitz’s motto and one reason he’s looking at the commodity markets.
“Nibbling on this kind of investment is an interesting play,” Horowitz says. “A stock can go out of business; you can’t do the same thing to a commodity. You can’t bankrupt a commodity. People have to eat. That is the bottom line.”
Last summer’s spike in oil prices and the enthusiasm for biofuels sent prices of commodities such as corn, rice and soy skyrocketing in June and July. Then they crashed. Americans’ grocery bills, however, didn’t drop in tandem. Food prices ended the year up 5.8%, according to the Bureau of Labor Statistics’ Consumer Price Index.
Higher food prices coupled with steady demand should ultimately lead to a strong market for agricultural commodities, Horowitz says. One ETF in this area he likes is the PowerShares DB Commodity Index Tracking Fund (DBC, news, msgs).
Buy money
The recently approved $787 billion stimulus package and the massive bailouts by governments across Europe and Asia would caution against buying currencies. Printing all that money, after all, has to be inflationary. Right?
Yes. But the worth of any currency is relative.
As long as the same inflationary pressures are at play the world over, it doesn’t matter that the dollar will eventually be worth less — as long as the values of the British pound, the Japanese yen or the European Union’s euro have similarly declined.
Of course, inflation won’t ultimately affect all currencies in the same way. Some countries have promised to sell more debt and print more money than others. The key is to bet on — or against — the right currency.
Horowitz is betting against the euro. He believes the multitude of countries that decide the monetary policies underpinning the euro’s value will make the currency difficult to stabilize. As a result, he likes Market Vectors Double Short Euro (DRR, news, msgs), an exchange-traded note (similar to an ETF) that gains 2% for every 1% decline in the euro’s value relative to the dollar. It also, importantly, loses twice as much for every gain in the euro’s value.
It may seem counterintuitive to both bet on the dollar and against Treasurys. But making both moves is a way to hedge. That reduces your risk by giving you a way to make money when the dollar goes up or down (yet limits your upside, too). And reducing risk is one of the main reasons not to be in the stock market now. Right?
Likely, the dollar will strengthen in the short term, making Treasurys more palatable. But the dollar will weaken in the long run as investors’ appetite for risk gradually returns. As the dollar’s value decreases, Treasurys become less attractive. Hedging allows you to avoid having to call the moment when the dollar’s transition will happen.
When the dollar does start weakening, investors will stop hoarding Treasurys and buy something — anything — capable of at least beating inflation. That’s the argument for buying an ETF that gains as Treasury prices fall.
The argument for a weak dollar is made stronger by the huge federal stimulus package. Pumping all that money into the economy should fuel inflation, especially if the stimulus succeeds in spurring business and consumer spending as well as government largesse. The more inflation rises, the more people will want an asset capable of at least retaining their money’s value. That makes Treasurys, with the current yields, even less attractive.
One short ETF, ProShares UltraShort 20+ Year Treasury (TBT, news, msgs), has risen 27% since a Dec. 30 low of $35.85 a share. The ETF is structured to go up twice the amount that the Lehman Bros. 20+ Year U.S. Treasury index goes down each day.
Keep cash
Here’s a twist on a Wall Street adage: When there’s blood in the streets, stuff your money in your mattress.
As depressing as that may sound, it’s the mantra of many now-risk-averse investors. And as long as people are getting out of the market — and staying out — cash will be king.
That said, you needn’t keep your money in a low-interest savings account. Money market accounts have higher interest rates and the same Federal Deposit Insurance Corp. protection as your average savings account.
Rates of return for most money market accounts, however, still don’t beat last year’s inflation rate of 3.85%. Some of the best ones offer just 2.5%, according to Bankrate.com, which tracks the rates offered by different banks across the country.
That rate is good as long as inflation remains near zero — where it was in January — or reverses course. But it’s pretty awful if inflation returns the near 3% rate that has been the norm in the past decade.
In addition, unlike a plain old savings account, money market accounts don’t let investors easily move their money into more-attractive arenas.
Still, with a money market account, you’re not locked in for as long a period as, say, a 10-year Treasury bond. Most funds let you make several withdrawals a month.
At the time of publication, Catherine Holahan owned shares of the following exchange-traded fund mentioned in this article: ProShares UltraShort 20+ Year Treasury.
Penthouse Owner to Compete With Hefner for Playboy Control
By Brett Pulley - Jul 13, 2010 7:34 AM PDT Tue Jul 13 14:34:48 UTC 2010
Playboy magazines are displayed on a news stand in New York, on Nov. 12, 2009. Photographer: Rick Maiman/Bloomberg
July 12 (Bloomberg) — David Bank, an analyst at RBC Capital Markets, talks about the proposal to take Playboy Enterprises Inc. private by founder Hugh Hefner. Bank, speaking with Betty Liu and Jon Erlichman on Bloomberg Television’s “In the Loop,” also discusses Google Inc.’s business strategy and the outlook for the distribution of television content. (Source: Bloomberg)
July 12 (Bloomberg) — Todd Harrison, chief executive officer of Minyanville Media Inc., speaks about the proposal to take Playboy Enterprises Inc. private by founder Hugh Hefner. FriendFinder Networks Inc., owner of Penthouse adult magazine, plans to submit a bid for Playboy following the $123 million offer from Hefner. Harrison talks with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)
Hugh Hefner owns 69.5 percent of Playboy’s Class A stock and 27.7 percent of the B stock. Photographer: Gabriel Bouys/AFP/Getty Images
FriendFinder CEO Marc Bell is interested in Playboy for its online potential. Photographer: Robert Caplin/Bloomberg
FriendFinder Networks Inc., owner of Penthouse adult magazine, plans to submit a bid for Playboy Enterprises Inc., following a $123 million offer from Playboy founder Hugh Hefner.
FriendFinder Chief Executive Officer Marc Bell said in an interview the company is “looking at alternatives” and later wrote in an e-mail it will probably make the bid today.
Playboy said yesterday that Hefner wants to take the company private, and offered to purchase the shares he doesn’t already own in Playboy, which includes the namesake men’s magazine, merchandise, and television and video content.
Hefner plans to offer $5.50 apiece in cash for the Class A and Class B shares, Chicago-based Playboy said in a statement. Hefner, 84, is partnering with Rizvi Traverse Management LLC for the transaction. The offer, at a premium of more than 30 percent, values Playboy at about $185 million.
Playboy said Hefner, who controls its voting shares, isn’t interested in a merger or sale to a third party out of concern for the company’s brand and Playboy magazine’s editorial direction. Playboy has combined units and slashed jobs to cope with a circulation plunge caused by Internet competition.
After Hefner founded the company in 1953, Playboy magazine garnered a following for its photos of nude women, its satirical cartoons, and its fiction. The first issue of the magazine included photos of Marilyn Monroe, and authors such as Vladimir Nabokov were published in Playboy’s pages.
Expansion Years
The company expanded around the globe in the 1960s and ‘70s with Hefner at the helm. The company went public in 1971 and circulation peaked at 7.2 million in 1972. In June, the company hosted parties around the country to mark the 50th anniversary of the once-famous Playboy membership nightclubs that dotted the globe.
Playboy’s revenue has declined for the past two years as it has lost more than $200 million. At the beginning of this year, the company reduced Playboy magazine’s rate base, the total of newsstand and subscription sales guaranteed to advertisers, to 1.5 million from 2.6 million. In addition to the magazine, Playboy creates videos for its website and cable-television networks, and licenses products with its bunny-ear brand.
‘Girls Next Door’
The company last year hired Scott Flanders as chief executive officer, replacing the founder’s daughter, Christie Hefner. Christie Hefner had served as CEO for 20 years, as her father continued to personify the brand with his lifestyle at the Playboy mansion.
The Los Angeles mansion, which the company uses for television shows, photo shoots and events, is “an enormous asset to us,” said Playboy spokeswoman Martha Lindeman. “It’s a huge part of our brand.”
Hefner is currently most recognized for squiring voluptuous young women around the mansion while clad in one of his trademark silk smoking jackets. Some of the octogenarian’s most recent girlfriends star with him in the TV show, “The Girls Next Door,” and related online videos.
Hefner was sued in 2009 by an investor who said the Playboy founder scuttled potential acquisitions so he could maintain his residence at the mansion. Lindeman said she didn’t know the status of the lawsuit because it was filed against Hefner personally.
‘Billion-Dollar Brand’
Bell said that if he successfully purchases Playboy, he wouldn’t require Hefner to move out of the Los Angeles mansion. Bell, whose company includes the AdultFriendFinder.com website, said he is interested in Playboy for its online potential.
“Our interest is mostly the digital assets,” Bell said. “We have no desire to throw him out.”
Hugh Hefner couldn’t be reached for comment, according to Lindeman. Christie Hefner declined to comment, according to her spokeswoman, Deb Parry.
In a conference call last month, Flanders said that Playboy’s new strategy is to change from being an “inefficient operator of small segments of media” to becoming more of a brand management company.
Playboy, based in Chicago, is seeking partners to increase revenue from licensed goods and expand branded clubs and casinos. The moves are part of a restructuring plan that Flanders has said will result in a profit in 2011.
On last month’s call, Flanders said that investors were undervaluing Playboy stock.
“You could own the company for an enterprise value of $200 million, and we believe we have a billion-dollar brand,” Flanders said at the time.
Declining Magazine Sales
Last week, the company announced that it would downsize its organizational structure, resulting in a $3 million charge in the second quarter of this year. In recent days, Michael Dannhauser, Playboy’s senior vice president and controller since 1998, said that he was leaving the company. His duties were given to Christoph Pachler, according to Lindeman.
Hugh Hefner owns 69.5 percent of Playboy’s Class A voting stock and 27.7 percent of the Class B non-voting stock. The company said it hasn’t received a definitive offer from Hefner, and the board has made no decision about the proposal.
Playboy B shares fell 14 cents to $5.41 at 10:29 a.m. in New York Stock Exchange composite trading, after jumping 41 percent yesterday. The B shares had gained 23 percent this year before yesterday. The A shares advanced 3 cents to $5.56, after climbing 36 percent yesterday and closing at $4.06 on July 9.
Playboy magazine’s U.S. sales fell 48 percent to $7.1 million in the first quarter, reflecting the company’s decision to lower the magazine’s rate base and combine some issues. The company’s Print and Digital group lost $1.1 million in the first quarter, compared with a loss of $3.6 million in the 2009 quarter. The group’s revenue fell 30 percent to $18.2 million.
To contact the reporters on this story: Brett Pulley in New York at bpulley@bloomberg.net
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This is something I found and could be interesting. As always please do your own homework and remember we are not registered traders or financial advisers just a team of people sharing investment ideas! Happy investing-
ROIAK – Radio One, Inc. (NASDAQ)
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Hi Will.
Sorry I haven’t sent a pick out in the last week
or so….got one for you today and maybe another
before the end of the week.
*New MM Pick: ROIAK*
I think this one has $2 written all over it. I am speculating
that a large institutional buyer is pouncing on this stock today.
If I am right, momentum should continue for several days.
May have alerted this one a few weeks back to you…gotta
check my archive but I think I did…anyways you gotta keep
stocks on your radar that don’t work out the first time you
trade them…this is one of those times.
I alerted paid members yesterday that this stock may be ready to move,
sure enough this morning it exploded. I did buy shares yesterday as I
also mentioned that I was pondering to paid members. Just putting
that out there to comply with SEC stuff.
Keep your eye on ROIAK, even if you don’t play it…due for a
sustained run upward.
Later,
Matt
Disclaimer: Never invest money in microcap stocks/options that you can’t afford to lose.
You can lose all of your capital by trading any stock/option mentioned.
These stocks /options are very volatile and gain and lose value quickly.
We reserve the right to freely trade in any mentioned stock/equity/options. We are not compensated by any mentioned companies.We recommend stocks/opinion based on our opinion of instrinsic/possible future value only.
We are not registered investment advisors, so always do you own research before buying any recommended stock/options.
You can lose all of your capital by trading any stock/option mentioned.
These stocks /options are very volatile and gain and lose value quickly.
We reserve the right to freely trade in any mentioned stock/equity/options. We are not compensated by any mentioned companies.We recommend stocks/opinion based on our opinion of instrinsic/possible future value only.
We are not registered investment advisors, so always do you own research before buying any recommended stock/options.
Some interesting ads about SEX… yes sex sells and it’s because we are all driven by physical connection and pleasure. So why not capitalize on it? Some like it…some don’t… but one thing is for sure the Europeans have much better ads-WK
Lynx Body Wash.
PUMA Clothing.
Renova Toilet Paper.
A vacuum.
(Do you see the vacuum in the bottom left corner? Look carefully, or you may miss the point of the ad.)
Lingerie.
Volvo Cars.
Herald Towers Condominiums.
Che Magazine.
iPod.
Carl’s Jr. Hamburgers.
Playstation 2.
Playboy… I have included this in some of the vice stocks I speak about? You know the stocks that seem to be recession proof, alcohol, tobacco, drugs, sex… it seems that people will still purchase these because why—–it’s their vice! Look at these segments almost all are recession prof to some extent. Yes, it’s true that people will drink cheaper alcohol but they still drink alcohol. Most of the companies which make expensive spirit also make cheaper brands…so happy investing! This article was to get you thinking only…it’s up to you to find your own VICE…WK
The below excerpt is from NYT july 22 2010 written by Steven Davidoff
Playboy
With a controlling ownership stake, Hugh Hefner is in the driver’s seat of Playboy Enterprises.
Under Delaware law, he has no obligation to sell out to any third party, though he will be subject to the freeze-out laws discussed above if he is the acquiring party. Still, while Mr. Hefner may be bidding, Playboy remains a tangled and money-losing enterprise – its biggest asset is the Playboy mansion – and Mr. Hefner’s co-partner has produced only a “highly confident” letter for financing.
This deal may have a few twists and turns if it ever comes to fruition.
I have always said, Buffett is someone that we should all learn from. He still owns the same house he bought years ago and is not driven by greed! We can all learn a great deal from this man-wk
For those seeking wealth, follow Warren Buffett’s lead: Invest in companies you understand
Monday, March 8th 2010, 4:00 AM
Acker/Bloomberg
Warren Buffett’s methods may not be exciting, but making a fortune on long-term investments is.
Related News
Many people say they want to invest like Warren Buffett, but what most really mean is they want to be filthy rich. Few actually want to invest the way Buffett does, which is unfortunate, because following Buffett’s lead is easier and more profitable than the techniques most people use.
Buffett invests in what he believes are great companies that he can understand. Look at Berkshire Hathaway’s portfolio companies: You see Dairy Queen, Benjamin Moore, See’s Candies, Fruit of the Loom and other apparel companies, Justin Boots and H.H. Brown shoes; five jewelry chains including Helzberg Diamonds, four furniture companies, trucking companies, Burlington Northern Santa Fe Railway, a few insurance companies and MidAmerican Energy Holdings – all relatively simple businesses.
Berkshire’s major stock holdings include consumer products companies like Coca-Cola, Procter & Gamble, Kraft Foods, Johnson & Johnson and Nike; retailers including Walmart and Costco; financial services companies such as Wells Fargo, U.S. Bancorp, M&T Bank, American Express, Wesco Financial and Moody’s; oil giant ConocoPhillips; and publishing giant The Washington Post. Again, these are strong companies with simple business models.
Buffett has no technology, Internet or biotech companies. He has almost no real growth stocks. His portfolio looks plain stodgy. If one of your friends had the same portfolio, you would tease him for being over-the-hill, which I can assure you Buffett is not.
The fascinating question is how does Buffett make so much money investing in slow-growth, old-economy stocks?
- He picks businesses he can understand: furniture, candy, ice cream, underwear, Coke. He does not try to understand new-economy stocks. The old economy works fine. Picking companies you understand is solid advice for any investor.
- He does his homework, reading financial statements and trying to understand the businesses of the companies he buys. If he does not understand the financial models, he does not invest. During the heyday of the Internet boom, analysts were pushing all sorts of new yardsticks. Buffett relies on simple measures, like cash flow and strong brand positioning.
- He looks at the long-term. Buffett often buys entire companies, so he’s not overly concerned with slight fluctuations in quarterly profits. It’s the same when he buys stocks. Buffett often owns stocks for years, if not decades. So he does not focus on Wall Street analysts’ estimates or the in-and-out strategies of the fast money crowd. Nor does he spend his days studying chart patterns. While many experts say buy and hold is dead, Buffett is proof they are wrong.
- He always has plenty of cash on hand, so he can buy when he really sees a bargain. Many investors feel they have to be in the market. Buffett wants cash sitting on the sidelines so he can act when a crisis hits. Wait long enough and they always will. Two years ago, when the market melted down, everyone turned to Buffett, because they knew he was one of the few who had cash. That was how he was able to cut extremely attractive deals with Goldman Sachs and others. Buffett does not care that his sideline cash is earning a low return. He is biding his time until really opportunistic investments arise.
- Buffett focuses on buying at very low prices. Even the best companies hit occasional roadblocks. Remember New Coke? Buffett waits for companies he can understand to get hit by short-term traders. Then he steps in and buys. He has made almost all his money buying stocks at the right price and then holding them.
Buffett’s strategy is not as exciting as many of those depicted on financial television. Nor is it as profitable for brokers. Few people turn over their portfolio more slowly. And watching Procter & Gamble is not as exciting as having a biotech company develop a new drug.
All of this may sound boring, but it works.
Your Money columnist Peter Siris is an investment manager at Guerrilla Capital in Manhattan.
Is Now a Good Time to Invest?
No one knows what the financial markets will do over the next year. You can, however, predict with some certainty what your financial needs will be. The only way to weather market cycles is to save regularly and invest wisely.
Here are 10 ways you can invest with confidence in today’s market:
- Revisit your goals.
- Keep a long-term perspective.
- Don’t sell after all the bad news is out.
- Be prepared for whatever happens.
- Diversify to seek to enhance risk-adjusted returns.
- Get ready for growth, but don’t forget value.
- Capture the potential returns of various types of investments.
- Rebalance to buy low, sell high.
- Schedule automatic investing.
- Invest as if your future depends on it.
