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About 20 years ago, a little and then unknown company
was created by Bill Gates and Paul Allen called Microsoft.
Now barely 10 years plus since Microsoft went public in 1986, Bill Gates
is the richest man in the world and Microsoft is the largest company
in the world in terms of market capitalization (market
capitalization = stock price x total number of shares
outstanding). Never in the history of the world has wealth and
market dominance been created so quickly. In fact, the saying
goes that every time
a new technology company goes public, this company
is going to be the next Microsoft.
Well, I am here to tell you that the next Microsoft
is Microsoft. No company is better positioned financially
(almost 45 billion dollars in cash), intellectually (Microsoft continually
hires the brightest people available and pays them what they are
worth), or competitively (Microsoft has virtually no competitors
according to the federal government) to benefit from the
mushrooming technology boom that is sweeping the world. There
is an old saying on Wall Street that has proved to be correct many
times: "The financial markets are not wrong, they are just too early." This saying partially explains how
Internet stocks can
sell for thousands of times their current earnings. It is also
an important key as to why Microsoft may be the best single
investment opportunity for the first half of the 21st Century.
Here are some specific reasons why you should invest in
Microsoft:
1. Great investors like Warren Buffett look for
companies that have a franchise business. Franchise businesses
as defined by Warren Buffett are characterized as
providing a product or service that a) is needed or desired, b) has
no close substitute, and c) is not regulated. Microsoft meets
these criteria so well that the federal government is investigating
their business to determine if it is a monopoly. If
you haven't noticed, however, not even a dent has
appeared in Microsoft's business armor after repeated investigations and a trial
against Microsoft by the Department of Justice. The rumor is that the
Department of Justice cannot determine what to do because Microsoft
will just appeal any decision against the company, and by the time it
is finally resolved years later, the impact to Microsoft's bottom
line will be rendered negligible by technological advances and new
product development. The truth is that technology is evolving too
fast for the federal government to control and the beneficiaries are
large technology companies like
Microsoft.
2. I am a firm believer that history does repeat
itself. If you turn the clock back to the beginning of the
20th Century, two important business developments that completely
changed the next 100 years occurred: the invention of the
automobile and the invention of the airplane. The important
development that will change the way we live in the 21st Century is
the Internet. Guess which company is one of the top five
Internet companies, has much more investment capital than any other
Internet company, and is actually selling at a steep discount to
other traditional Internet companies: Microsoft. Microsoft is
currently selling at about 60 times earnings while most Internet
stocks sell at 100 to 1000 times earnings. Microsoft, unlike
most of the other traditional Internet companies, also has an
entirely separate stream of revenue from its software business that
will generate tons of profit regardless of the ups and downs of
the Internet.
3. Microsoft has always had a policy to hire the
brightest people available, pay them what they are worth, and provide
them with the tools they need to do their job. This
policy is so important to the company that Bill Gates still takes
time each week to meet with all the new recruits whenever
possible. I also read a story a few years ago about a
recently hired employee at Microsoft who sheepishly asked for a new
$30,000 computer system and found it sitting on his desk less
than a week later, with no questions asked. Certainly
Microsoft demands a lot from their employees. But as we all know, most companies
(unlike Microsoft) nickel and dime their employees so
much that the Dilbert cartoon was created. Microsoft also is
consistently listed in the top 100 companies to work for in America, and
more individuals have become millionaires working for Microsoft than
any other company in the world. Microsoft recognizes that the
most happy, productive, and loyal employees in the world work at
companies that share the profits and continually empower their
employees to excel.
4. Bill Gates still owns approximately 35 percent of
Microsoft and a large portion of the remaining Microsoft stock is
owned by Microsoft employees. Read any decent book on stock
market investing and it will tell you that a key indicator of a
potentially good investment is that the owners of a company own a
substantial portion of the company's stock. This makes the
owners more accountable and lowers stock volatility. A second
interesting historical parallel is that John D. Rockefeller became
the world's first billionaire at the beginning of the 20th Century. If Microsoft's stock rises another 1000 percent (10-fold increase), Bill Gates will become the first trillionaire at the
beginning of the 21st Century. I predict this will happen by
the year 2010.
5. If you look at all of the traditional
measurements of a great business (high profit margin, high return on
equity, limited debt as a percentage of capital, high growth rate in
sales and earnings, high investment in research and development,
etc.), Microsoft is one of the top companies in the world.
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