Charles de Vaulx is manager of the First Eagle Funds, whose flagship fund -- the First Eagle Global Fund -- has returned about fifteen and a half percent annually since its inception in the 'Seventies. He was interviewed in Barron's this weekend. Excerpt:
"Buying Microsoft [MSFT] at 25 to 26 and having a 1% or 2% position is something we are comfortable with. One angle that intrigues us with Microsoft is they spend billions in research and development, more than 15% of sales. Yet one of the mysteries of disclosure requirements in the U.S. is that the company is under no obligation to explain how the money is spent and on what projects. People always talk about how bad disclosure is overseas. Well, if Microsoft doesn't have to tell much about the 15% of sales it spends on R&D, I'm not sure that is good disclosure, either. Anyway, our sense is that, in the past 10 years, Microsoft has not come up with much in the way of products after spending so much money. We think either they will start coming up with something or, if not, we would not be surprised if half of the R&D budget were cut. That still wouldn't impair Microsoft's current business. Ebidta margins would be quite a bit higher than their current levels. At the current share price, we are paying roughly 13 times Ebitda for the company, and if R&D could be cut or, preferably, if R&D could yield better results, we are paying just slightly over 10 times for the parent business, which is generating more than a billion dollars per month in free cash flow. In the meantime, the company is working for us by using free cash flow to buy back its own shares."
Full article here (paid sub req'd). Click on MSFT chart below to enlarge.