No Journal was published Sunday, May 31, 1931.
A medium-length blather on contemporary matters - an unsolicited recommendation to Steven A. Ballmer, 1 Microsoft Way, Microsoftville, WA.
As I'm sure anyone reading this has already seen by now, last week Apple passed Microsoft to become the top tech company in market cap, and second only to Exxon Mobil among US companies. This has naturally caused a ton of commentary and unsolicited advice to Steve Ballmer, prompted by the spectacular reversal of fortune between Microsoft and Apple since Ballmer took over in Jan. 2000 (in that time, Microsoft's market cap has gone from $556B to $226B, while Apple's went from $15.6B to $234B). So, again naturally, I can't resist adding my unsolicited blather to the pile.
First, an objective assessment of the debacle. As expected, Ballmer put a brave face on matters; in fact, the headline of the article above was “Ballmer Dismisses Microsoft Value Issue.” But is this entirely convincing? A quick Google search reveals that, in fact, the words “Ballmer dismisses” might almost serve as the dreaded Contrary Indicator:
Ballmer dismisses Google Android
Ballmer dismisses Apple's iPhone as hype
And, while Ballmer also argued that it's a long-term game, it must be noted that he's been CEO for over 10 years now, which is at least starting to get into the long term by most definitions.
Second, while I don't want to give stock advice here and implore you to do your own due diligence on buying any stock, in my own personal Constitutionally protected opinion it seems that Microsoft's stock is, if not Stupid Cheap, at least Pretty Darn Cheap. I mean, in the 12 months ended Mar. 31, which included part of a nasty recession, they earned $1.93/share; when you net out the $5 or so in cash and investments per share, the business is trading pretty close to a single digit multiple of earnings, which seems too cheap for a company with their financial strength and competitive position. So, while I would be the last to recommend a measure designed to pump up a stock beyond its appropriate value, it seems that taking some action to bring the stock price into a more reasonable range might benefit both Microsoft's long-suffering shareholders and Ballmer's job security and legacy.
Allow me to suggest such an action, which would almost certainly work but is so simple and non-fiendishly-complex-and-brilliant that it has almost no chance of being taken by a self-respecting tech company. What if Ballmer wrote the following letter to shareholders:
Dear faithful Microsoft owners:
Thanks for your support in this trying time. For the past few days I've been holed up with some of the world's most brilliant financial minds trying to come up with a way to reverse last week's catastrophe. And we have indeed come up with some fiendishly brilliant plans. Some involve tractor beams and sharks with frickin' lasers on their heads; others doing something with our enormous cash pile just sitting there on our balance sheet when any fiendishly brilliant financial mind knows the path to riches is to leverage that balance sheet up out the wazoo. Upon reflection, however, I've reluctantly decided to keep the existing cash pile; as we learned recently, the financial markets can sometimes freeze up and it's best to be ready for any eventuality. However, it occurs to me that the cash pile we now have is more than enough to meet any need that might reasonably arise; therefore, there's no particular point to continuing to pile up still more cash. Therefore, effective immediately and for the foreseeable future, all earnings coming in will be paid out as dividends as soon as we figure the numbers out each quarter. Thanks again for your support, and sorry about that whole Vista thing ...
If this plan had been effective over the past year, it would have paid out the aformentioned $1.93 in earnings in that time, for a yield of 7.5%, and would probably pay considerably more over the next year. While I realize Microsoft is somewhat out of favor, I still don't think there's any way it would stay at that yield for very long ...