Why do investors and traders waste so much time and effort on companies that just aren’t worth it? Why do they seem to care so much about the corporate governance of a company they neither hold shares in nor believe to be a good investment?
I’ll admit I’ve been guilty of doing this as recently as this morning, when I threw out my two cents on the issue of Cisco (CSCO) cutting costs to make its bottom line look bigger. But why? I have zero interest in Cisco, Research In Motion (RIMM) and Microsoft (MSFT).
Why do people love to believe that if just a few things were changed, these companies could turn it around, and see their stock prices catapult?
Let me give you two pieces of advice. One, you’re wasting your time dealing with large-cap companies whose growth has slowed. Once a large-cap company’s growth has slowed, its chances of revving up the engines again are under 10%. You are wasting your time even thinking about these companies for more than a short-term trade.
Two, stop bashing the executives of these companies for failing to get the stock price going. They have almost the same ability to affect the trajectory of their company as you and I do, which is next to none. There are outliers, obviously; look at Steve Jobs at Apple (AAPL) or the lineage of great leadership at IBM. These are situations where a specific culture or extraordinary men (and women) were able to overcome the laws of large companies, such as the increased difficulty to innovate and the deterioration of flexibility.
John Chambers of Cisco and Carol Bartz of Yahoo (YHOO) may not be the best operators out there; they are certainly not Jeff Bezos or Steve Jobs. But the direction that their companies’ stocks have taken is not their fault. To completely transform a $50+ billion company is a monumental task that only a few people on earth can accomplish.
Some companies and business models just need to die. Others, like Microsoft, are more suited for just being cash cows. You can scream and yell all you want about how Microsoft should shake things up, that Ballmer should take more chances, innovate faster, spend more money on certain divisions and projects. But you are missing the point of what Microsoft is as a company. Microsoft exists to be a cash cow right now, it does not exist for the purpose of the stock price. '
Who owns Microsoft shares? It certainly isn’t anyone looking for a large appreciation in the value of the company. Microsoft is owned by large institutions looking for a safe place to park cash, and Bill Gates. And when it comes to Gates, do you really believe that he wishes to see his legacy destroyed so that a few yahoos (no pun intended) can roll the dice on some other line of business and see his empire crash?
Microsoft exists as a monument to Gates, and if it is slowly chipped away at over the next 10-20 years, I think that’ll be just fine by him. If you think you own Microsoft for any other reason than the cash flow from the Windows operating system, you need your head examined.
And if you believe you own Cisco because it's going to miraculously find some other business line that is going to juice its valuation multiple and set it on the path to higher growth, again, go get your head checked.
Owning these stocks and worrying about their governance is useless. Let them sink under their own weight; you don’t have to be a hero. You want to own companies that are growing revenue and earnings at an increasing rate, companies that are still rapidly expanding, that have the opportunity to make a large impact on both the top and bottom lines with a new product segment.
Some companies have just seen their time pass, and that’s fine. It is the natural way of things in the market. You are wasting too much time on trying to stand in front of a cruise liner trying to turn it around.