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"Tech (XLK, QQQ) is where cash goes to die," says Bill Smead as research shows massively...

"Tech (XLK, QQQ) is where cash goes to die," says Bill Smead as research shows massively over-capitalized companies don't perform any better than undercapitalized ones. "There's not enough tension - you don't make very good decisions what to with cash when you've got too much of it - unless you're Warren Buffett." Example #1 is Microsoft (MSFT): "They've probably lost more money in the last 13 years in the online business than any single corporation  ... in history."
Comments (3)
  • chopchop0
    , contributor
    Comments (3125) | Send Message
     
    HPQ is probably another great example.
    28 May 2013, 07:56 AM Reply Like
  • skiz
    , contributor
    Comments (364) | Send Message
     
    Innovation has a high price, though someone with the right understanding of it can make a lot of money. Warren stays away because he knows he doesn't understand it. Most people would be wise to follow Warren, though some exposure at the right times would have been hugely accretive as well.

     

    As to the statistic, it is pretty meaningless. How many other online businesses since 1999 have succeeded? How many trillions were lost in that implosion? How many billions were lost with TW AOL merger? It's just fun to pick on Microsoft because they're still around and still trying to make a run on it. With cloud computing catching on, I suspect the investment will pay off in the long run. If Microsoft had been split into two parts in 1999 (online vs everything else), how many would have picked the "winner" and sold the "loser" in 1999? Keep in mind there was no Google and the Internet was the hottest thing since tulips. Also keep in mind that 2013 isn't the finish-line and that other divisions may have had a harder time (Xbox Live, Office 365) without the value of the online division.
    28 May 2013, 09:22 AM Reply Like
  • skiz
    , contributor
    Comments (364) | Send Message
     
    Comparing MSFT to XLK since 1/2000 - about the same, but MSFT has some sizable dividends.

     

    Comparing XLK to XLF since 1/2007 - I'm changing the statement to "Financials is where cash goes to die."

     

    * Past performance is not indicative...
    28 May 2013, 10:22 AM Reply Like
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