Microsoft has been right up there with Apple as far as the biggest stocks in the world go. They got there from their tremendous rise in stock prices, and are ready to deliver more.
Microsoft’s IPO in 1986 has gone down in history for a number of reasons, not the least of which is how much its stock has gone up over all these years. Sure, there have been some real ups and downs, particularly during the tech crash of 2000, where it lost over half its value in a single year, and the 2007 crash where it met the same fate in a little over a year, but overall, this stock has redefined the notion of a hot stock over time.
If you bought this stock when it first hit the market though and kept it all these years, you would be enjoying a 138,888% return on investment, or an average of 4,208% each year over the last 33 years. $1,000 invested in Microsoft back then would be worth over a million dollars today.
Returns like this simply boggle the mind, and Microsoft is the holy grail of buy and hold investors, or at least should be. This does not mean that this is a good idea generally though, and we want to be on guard not to use a selective sample of instances where this works and project that to your current holdings, and Microsoft is indeed a rarity.
We may even never see anything like this again, which required a company with such a massive competitive advantage putting this to work in a truly golden age of technology to pull this off.
All of this water has gone under the bridge now though, and as always, we need to cast our view on the water that is yet to pass, but the past does still have a lesson it can teach us. Many investors find themselves put off by the amount a stock has gone up already, may refuse to buy, and then watch with pain as it goes up further without them.
Just Because a Stock Has Gone Up a Lot Doesn’t Mean This Won’t Continue
Microsoft has shown us nothing if not the fact that while you can’t always rely on the past for gains to continue, you can’t always count on past success to limit future success. It’s not that people don’t chase moves, and it’s actually fine to do so generally, provided that you are not committing yourself to a bigger loss than the situation would merit, meaning that you don’t hang around past the point where you should have left.
This is called limiting your losses or defining your risk, and when you pay proper attention to doing this, you can be more daring than someone who ends up entering in near the top and stubbornly hangs on deep into a reversal. They don’t call them reversals for nothing, and when a stock price reverses enough to call it that, and does so in a way that makes a significant impact upon your position, our outlooks need to reverse in tandem.
Microsoft is a higher beta stock, meaning that it tends to both go up and go down more than your average stock, percentage wise. When the market is running well, it pays to be in higher beta stocks, the ones that are responding well that is, and when things aren’t so great, while it’s good to be out of stocks generally, you really don’t want to be riding higher beta stocks down.
Microsoft’s losses during the 20% pullback that we saw in the market from October to late December actually came in a tad lower than the market did, which actually is a real nice sign that the stock itself has a fair bit of confidence behind it.
While the broader Nasdaq and S&P 500 have finally gotten back to all-time high territory this week, Microsoft is well above theirs, and is now up 33% from their December 24 low, the day the market bottomed out as well.
Microsoft recovered better than the market did during the last week of 2018, showing that investors were particularly chomping at the bit to get back in this one, and they have also outperformed the market in 2019 with a 23% gain so far. These are both good signs.
Things Look Good for Microsoft Right Now
Microsoft is certainly a key stock in the market, given that there is around a trillion dollars invested in it, but it’s particularly watched to get a feel of where the economy and the tech sector in particular is headed. A strong Microsoft is viewed as a real positive here, and we’re seeing plenty of that in 2019.
Investors are particularly enthusiastic about Microsoft’s expansion of their cloud business as well as their growing software subscriptions. Changes in stock price from earnings reports have more to do with how the actual results compare with expectations, and Microsoft’s $1.14 a share well beat the street estimate of $1.00.
Revenue came in at $30.6 billion, also beating the consensus expectations, which were $29.88 billion. The company’s cloud computing segment provided particularly good numbers, up 73% year over year. The cloud has been the future of computing for some time now, and Microsoft’s market position and reach provide lots of opportunity for them to grow along with the cloud, and they have.
Microsoft CEO Satya Nadella shared this enthusiasm during the current earnings release. He told investors that “leading organizations of every size in every industry trust the Microsoft cloud. We are accelerating our innovation across the cloud and edge so our customers can build the digital capability increasingly required to compete and grow.”
After hours traders have applauded this earnings report, sending Microsoft up another 2.3%. It is poised to make yet another all-time high Thursday. As much as Microsoft has moved up through the years, there seems to be plenty of room still left to grow.