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Comment by dean | Hacker News Reader

The stock market is all about the future, not the past. A lot of people see Microsoft's future as being less profitable than its past. That's why people belittle it.

Microsoft makes a ton of money, no one will deny that, but they make less money than they used to. It's funny how the OP shows the financial numbers for one quarter and says the "the trend here is clear". You can't determine a trend on one quarter, you have to compare to other quarters.

Here are some numbers from Google Finance (http://www.google.com/finance?q=msft)

The first number is Q1 (Mar '12), the second is 2011

Net profit margin 29.34% 33.10%

Operating margin 36.62% 38.83%

Return on average assets 17.80% 23.77%

Return on average equity 30.86% 44.84%

Looks like the trend is down.

Also, their stock price has been basically flat for 10 years. That tells you what the market thinks of Microsoft.

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People belittle Ballmer because:

(1) they were the big villain for a long time and there's still a lot of unspent schadenfreude with their name on it.

(2) they've always been juxtaposed with Apple which is in meteoric rise like nothing we've really ever seen.

(3) because monkey boy

Their stock price is flat only if you don't include the dividends they've paid out.

"Their stock price is flat only if you don't include the dividends they've paid out."

You have that backwards. If people think a company will pay out big dividends, then they bid up the price of the stock. That Microsoft's stock has remained mostly flat despite good dividend payments suggests that the stock would have plummeted without the dividend payments, and it will plummet if the dividend payments stop.

A flat stock price despite good dividends suggests weakness, not strength.

"If people think a company will pay out big dividends, then they bid up the price of the stock."

No not really and if they do then the price falls once the dividend is announced.

This is basic math:

Company is worth x dollars.

Company gives away y dollars.

Company is now worth x - y dollars.

Felix Salmon explains it well here:

http://blogs.reuters.com/felix-salmon/2012/03/19/apples-sens...

It doesn't fall when a dividend is announced but rather after it is paid out.

Buyers will only bid up if they expect the dividends to increase without compromising the ability of the company to pay further dividends, or if the dividend is paid out with an asset that is currently worthless the way it's being used. It's really no different than growth stocks -- they are bid up with the idea that the last owner of the stock will ride it out in dividends until the final sale of assets.

The market does not think. It is neither efficient nor rational.

If the stock market is about the future, then how do you interpret Goldman Sachs' share price of $235 in November 2007?

1 year later it fell to $53.

A company's share price will tell you nothing about the actual financial stability or future of the company.

Neither is it entirely non-efficient nor non-rational.

Obviously, the stock market isn't about the actual future -- nobody knows that.

It's about the expected future, calculated in a pure informational way.

The price = the market's overall evaluation of all currently available information. Obviously it's not perfect, but the point is that if you know better, then you ought to be in investing, not programming, because you'll make a lot more money.

This man is absolutely right.

The stock market is rarely rational. This is exploited by value investors, like myself, who invest in companies that are undervalued for no reason.

>value investors

Just following your logic here, value investors bank on the market's eventual rationality?

Or is it rather that a company who is undervalued for no real reason today might be overvalued for no real reason tomorrow?

I don't remember who first said it, but it's worth repeating, "the market can stay stupid longer than you can stay solvent"

John Maynard Keynes. s/stupid/irrational/

Thank you. I'm not sure if I'm proud or embarrassed to be an unintentional Keynesian.

If your life savings is invested in one undervalued company then sure, that's pretty risky. If you happen to have a portfolio spread amongst many undervalued companies, then I'd love to be in your shoes no matter what people quote at me.

If the rest of the market undervalues them it can still undermine a value investor by sticking the company with high interest rates on bonds etc.

Keynesian beauty contest etc

"The stock market is rarely rational. This is exploited by value investors, like myself, who invest in companies that are undervalued for no reason."

Which tends to make the market more rational again.

But I agree that the market is not always rational, else there would never be a bubble.

>Also, their stock price has been basically flat for 10 years. That tells you what the market thinks of Microsoft.

If you consider MSFT stock price to have been flat over the last 10 years, then the market itself has essentially been flat over the last 10 years.

MSFT stock is up 20% over the last 10 years.

The S&P 500 is up 26% over the last 10 years.

That's not that big of a difference when considering (1) the immense volatility that we gone through over the last two boom and bust cycles and (2) some large portion of that 26% S&P 500 gain is Apple's 100x increase in split adjusted stock price.

"they make less money than they used to"

That's incorrect, your looking at profit margins and not actual profits. Profits have actually been increasing every year in the last few years (except in 2009).

>"The stock market"

Microsoft isn't beholden to the stock market in the way Google or Apple are. The two largest shareholders are Gates and Balmer. They have about 9% of the company between them - that's more than the three largest institutional investors.

As part of Dow Jones Industrial Average, many index funds have to hold Microsoft stock and have a strong disincentive to create turmoil which might drive the price down. Unlike the tech stocks to which they are often compared, Microsoft pays dividends which keeps the stock price lower.

As for the stock market being the future, that future is based on speculation about the next quarter not long term innovation.

9%... sooo the stock market holds 91%, sounds like it's beholden to me.

Page Brin and Schmidt own over half of GOOG voting shares, and intend to never sell off their majority stake.

I expect Jobs was similar, but what happened with his estate?

Jobs sold his founder Apple stock in the 80s (except for exactly one share), and I don't think he ever amassed very much of it after he came back, definitely not enough to be considered a major holder.

Good points, but I think this one is inaccurate:

"Microsoft makes a ton of money, no one will deny that, but they make less money than they used to."

Actually they make a lot more money now than since Ballmer took over as CEO.

>The stock market is all about the future, not the past. A lot of people see Microsoft's future as being less profitable than its past. That's why people belittle it.

Google's stock is worth less than what it was 4 years ago, it has also basically stagnated.

> but they make less money than they used to

No, they make more money in absolute terms than they used to. Their margins went down because they're investing more in mobile and tablets.

99% of America is worth less than 4 years ago. We had a recession.

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