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“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” – Bill Gates

Morning stock market summary

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We’re looking at a modestly positive start to the trading day with overseas markets leading futures higher.  The Reserve Bank of Australia announced a pause in its rate hiking cycle, and PPI fell more than expected in the Eurozone, and inflation expectations in the region slowed from 6.2% down to 5.8%.

48 years ago today, a college dropout and a computer programmer in Boston started one of the most successful business stories in US history.  The number of millionaires minted from “Micro-Soft’s” founding in 1975 is nowhere near the number of ‘blue screens of death’ and subsequent airborne staplers flying across the room that its software has caused, but when it comes to money printing presses, they don’t get much more efficient than Microsoft (MSFT).  With its market cap of just over $2 trillion, Microsoft is now the second-largest company in the US.  To put it another way, $10,000 invested in MSFT stock on the day of the IPO would be worth A LOT more today – like, 20 million more.

The chart below shows the rolling 10-year price performance of MSFT stock since 1996 (ten years after the company went public).  The early years for the company were a great time to be a stockholder or a Microsoft employee with stock options, but the heady days of gains came to an end in the early 2000s when the US government launched its antitrust suit against the company.  After a judge originally ruled that Microsoft violated parts of the Sherman Antitrust Act, the company later won on appeal, and the verdict was overturned. Microsoft may have won in the courtroom, but it was losing in the stock market.  The stock’s rolling 10-year returns plummeted throughout the early 2000s and even went negative for the first time in its history during the financial crisis.

Looking just at the last twenty years, the last decade has been another golden era for the stock, in what has been a legendary reinvention of the company.  It’s hard enough to lead one major industry trend, but to completely change your business model and do it again is rare indeed.  While the chart above makes it look as though returns for the stock have continued to languish in the last ten years, that’s only because of the perspective of the stock’s returns during the 1990s.  As late as 2021, the stock’s rolling 10-year return was a gain of over 1,200%.  Even after the market turmoil of the last year or so, MSFT stock is still up over 900% in the last ten years which works out to an annualized gain of 25%. Yup 25%!  Feel free to run the numbers in Excel yourself or just go over to Bing and ask GPT.

Another lesson of Microsoft’s stock performance over the last several decades is the power of compounding and the fact that sometimes, the best action is no action.  An investor frustrated with the stock’s performance in the early 2000s could have easily sold the stock to chase the next best thing.  Not only would they have taken a major tax hit on their gains, but by switching, they would have missed out on what has been a stock run unequaled by the vast majority of other publicly traded stocks. That doesn’t mean that you should always stick with an underperforming position, but if you are going to make a move, you want to be as sure as possible that the alternative is a better option.

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