Saturday, April 29, 2006

The Seattle Times: Business & Technology: Microsoft's one-day stock plunge: enough to buy all of Costco

The Seattle Times: Business & Technology: Microsoft's one-day stock plunge: enough to buy all of Costco: Fun with big numbers:

"Microsoft's stock took its biggest one-day fall in more than five years Friday, shaving about $32 billion off the company's market value.
That's enough to buy Starbucks, with plenty left over to treat everyone in China to a tall cafe Americano. Or maybe buy Costco and Getty Images and get back about $2 billion in pocket change.
It's almost as much as the United States spends every three months in Iraq and Afghanistan."

In reality:

"We announced yesterday that our [research and development spending] is going up even more,' Gates said. 'Some people are very enthused about those investments. Others were wondering why we think we need to invest so much. It really comes back to the optimism we have about these advances.'"

So yesterday's stock price drop suggests one or more of the following:
1. Wall Street is so obsessively focused on short-term results that strategic investments no longer rate.
2. Wall Street indiscriminately punishes companies that miss expectations, even when a company changes its investment strategy with a focus on long-term opportunities.
3. Investors think Microsoft will fail to achieve positive financial returns on its new investments.
4. Many investors are exhibiting symptoms of bounded rationality and are swayed more by (often deeply conflicted) buy/sell side financial analyst opinions than actual business fundamentals.

I gave up trying to discern a correlation between substantive business results and stock price variability a long time ago...
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