I feel as if I've awakened from a long sleep to find myself
in a land t'other side of the looking-glass! If you read
on, try not to find my words depressing. However, in
reading many of the posts from my fellow longs, it seems to
me as if there's a large amount of wishful thinking going
on, and this is never useful, is it?
The ruling is an unqualified defeat for our favourite stock.
There is nothing but bad news to come, first with the
"findings of law" and later with imposition of penalties.
Everyone knows this, but big holders will attempt to
minimise the hazards to buy the time they need to escape.
The only ray of hope for shareholders is if MSFT settles
the case quickly, even on unfavourable terms. The DOJ has
almost no incentive to give ground now; their main
motivation for settling it is to avoid the (minimal) risk
of losing some ground on appeal, and because they probably
do understand that the destruction of this great American
company is not something the public at large would like to
see happen.
Under this poisonous cloud of uncertainty, MSFT simply
can't be expected to sustain a 60 P/E. Looking at the
chart, there would seem to be two major areas of support,
a broad band in the mid-high 70s, which has been exerting
its pull on the stock all year, and a second, deeper base
in the low 50s. I believe a retest of the first support
level is inevitable, likely to be seen Monday as smaller,
panicked holders unload. I'm hoping and expecting that
the large institutional investors will attempt to mount a
defence here, staving off disaster temporarily whilst they
play liar's poker with each other and the public, all the
while hoping to unload by selling into any strength seen in
the coming days.
Pushing for politically-based solutions is a waste of time;
the chance for that is long past, no one in either the
executive or legislative branches can or will interfere
with the progress of a matter that is now entirely in the
hands of the legal system. Insulting the DOJ legal team,
the Judge, and other government officials is simply futile,
as is whining about this unfortunate turn of events.
Except for the anti-MSFT posters that have dropped in to
gloat at our misfortune, I haven't seen anyone point the
finger of blame for this fiasco at MSFT's management. Yet,
are these not the chaps who hired the legal team of Larry,
Curly, and Moe to mount their overly-aggressive defence?
Are they not the men whose continued arrogance and
mis-behaviour in business dealings could at best be called
ungentlemanly, and at worst (we shall soon know) illegal?
Of course, they've also brought us year after year of
stellar earnings; perhaps we cannot expect the one without
the other. Alas, it's we shareholders who will pay the
price now.
I've read the posts re. possible break-ups with great
interest. Although it's entirely possible that the parts
could be worth more than the whole, there is a big
problem with the division of MSFT's swollen piggy bank
amongst the so-called "baby bills". It will not be
as easy to fund new "rising star" businesses with the
proceeds from older "cash cows". And of course it will
matter considerably which of the fragments ends up with
W. Gates as the CEO. Overall, it's a scenario best not
contemplated too deeply if you're a shareholder.
For the first time since I started investing in MSFT,
I'm not sure what I'm going to do come the opening bell
Monday. I simply cannot sell any significant portion of
my long-held position in this stock, because the 6-figure
tax bill is unthinkable. Those of you who made posts
warning us to dump our shares prior to the ruling (or
telling us how we should have done so after the fact!) seem
to have failed to take the tax consequences into account;
perhaps you're all day-traders or have such small stakes
that taxes aren't relevant?. I may use any strength to
sell off small parts of my position that have a higher cost
basis. I would define strength as mid-high 80s, which in my
opinion are possible for Monday but unlikely. For the rest,
well I'll just have to ride it whatever direction it takes.
Oddly, given the quality of the earnings stream, this stock
is one of the best values on the Nasdaq, neglecting of
course the possible ill effects of legal events yet to
come. The lower the stock sinks, the better value it will
seem. Not that I'd be a buyer except at absurdly low
levels. Given the extremely high risk, I will not attempt
to bet on the hope of a settlement unless the stock returns
to the low 50s, something that I view as unlikely to be seen
until after the Judge drops his second shoe drops in the
weeks ahead.
I still love this stock, especially at this price or lower.
Most of the blue-chip alternatives look shockingly
overvalued to me. Consider:
ORCL 60 times earnings (disclaimer: I still own it)
CSCO 110 times earnings (disclaimer: I still own it)
SUNW 100 times earnings (never owned it)
SEBL 130 times earnings (foolishly sold it weeks ago)
INTC 40 times earnings (disclaimer: I still own it)
I especially love some of the posts explaining to us how
the IPO market is creating American's wealth. Among stocks
I follow, AMZN and YHOO are trading at 2000 and 1000 times
earnings, respectively, while EBAY and most other internet
stocks are still losing money! Doubtless some of these
stocks will eventually provide their shareholders with some
returns, though for the past few years (in my opinion of
course) the "wealth" has been created by playing musical
chairs with the savings of millions of investors. In most
cases the intrinsic value added has thus far been much
smaller than the market capitalisation. It sure looks
to me as if investors who are currently profiting from these
companies are doing so by selling their shares to a bigger
and bigger pool of fools, or by mergers of these companies
where stock bursting with inflated capitalisation is used
as currency in the deal (e.g. AOL's purchase of NSCP).
Well, enough analysis for one night. Whatever comes, let's
try to keep our heads up, shall we? This board has been
wallowing in angst for days, and it makes for depressing
reading. Some humour would help - anyone got any? ;-)
Best wishes to all my fellow shareholders,
VG |
