To all, a nice little editorial here on MSFT over the long term. The full link for portions not dealing with MSFT is provided at the end.
FOOL ON THE HILL
An Investment Opinion by Louis Corrigan
Hunting Gorillas
Since the day Microsoft (Nasdaq:MSFT - news) went public in 1986, it has probably
never looked inexpensive based on standard investment criteria. And yet it's been
the quintessential great investment of the last decade, with the company's market
cap rising from two-thirds of a billion dollars at its IPO to $240 billion today when
it trades at a price-to-earnings ratio of about 63.
The software giant is only one of many high-tech firms that trade at a P/E multiple
that makes many value-oriented investors cringe. And yet, many of these companies
experience long periods of accelerating gains in market share, rising margins, and
eventually, the industry position to muscle into entirely new markets when growth in
the core business begins to wane. In other words, conventional notions of valuation
don't seem to work because they are based on ideas of competitive restraints that
don't apply to high-tech the same way they do in other industries.
Microsoft might teach us, then, that some strong technology businesses get stronger
over time, and this potential is often not sufficiently factored into a stock's price,
lofty though it may appear. Still, it's important to determine exactly why this should
be so and which cases this lesson might cover and which ones it won't. After all,
every high-tech investor can reel off a string of examples where the highflyer
crashed and the wreckage was not pretty. For every Microsoft, there's at least one
Novell (Nasdaq:NOVL - news) . For every Cisco (Nasdaq:CSCO - news) , a Shiva
(Nasdaq:SHVA - news) .
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