Paul and thread,
Nice article for Intel and Microsoft investors. (Courtesy of Jim Lamb of the Microsoft thread)
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Contrarian Corner
Should Microsoft and Intel Be In All Portfolios?
Fri., Feb. 27, 1998
With all due respect to the disclaimer that past results are no guarantee of future performance, the Wintel duo, Microsoft and Intel, seem to be as close as you can get to essential cornerstones of most portfolios. Microsoft's domination of the software world is such that it may eventually infiltrate every software niche that provides meaningful market potential. It has already invaded and overtaken many industry strongholds. Numerous operating systems have succumbed to the pervasiveness of MS-DOS, and dozens, if not hundreds, of applications have been steamrolled by the offerings from the Redmond leviathan.
Who would have thought Lotus 1-2-3, WordPerfect, or Netscape Navigator would ever be seriously challenged, much less overtaken? How many other market leaders will meet their fate at the hands of Microsoft products?
By contrast, Intel has had far smoother sailing. Along the way, there have been occasional challenges to its leadership position, but the Santa Clara, Calif., company's orchestration of advancing microprocessor technology, with few exceptions (such as the Pentium fiasco of several years ago), has been little short of brilliant. From this naive vantage point, there's every reason to expect a continuation of the extraordinary record these companies have compiled.
Over the past decade, these companies have been exceptional investments. By holding equal portions of each, the following would have been the returns over the past decade:
ÿ 1998- 1997 1996 1995 1994 1993
MSFT/INTC 32.6% 31.9% 109.5% 60.6% 27.3% 18.5%
S&P500 7.7% 33.5% 23.5% 37.5% 1.3% 10.1%
ÿ 1992 1991 1990 1989 1988
MSFT/INTC 46.3% 74.5% 42.3% 54.3% -6.1%
S&P500 7.7% 30.4% 3.1% 31.7% 16.6%
Although you can't bank hindsight, more than a few investors have had the good fortune to be along for part or all this ride. Indeed, being aboard the Wintel bandwagon has been about as good a strategy as one could have followed, especially when one views the comparison vs. the Standard & Poor's 500, which itself has had an outstanding decade.
A $10,000 investment in the S&P 500 index starting at the end of 1987 would have climbed to $56,907 as of Wednesday's market close, probably a far better performance than most investors, professional or otherwise, can claim. A similar holding in Microsoft and Intel would have mushroomed to $467,430, more than nine times the gain of the index.
Is it too late to get aboard? We think not. From Microsoft's perspective, it seems as if "you ain't seen nuthin' yet." Similarly, Intel is slowly, but surely covering all bases so it may eventually gain market leadership in everything from plain vanilla home computers to the most powerful supercomputers. We would guess there's still a lot of gas left in these two tanks.
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