Long term investment should be boring, not fancy/exciting

When I first bought Microsoft (MSFT) close to 10 years ago, I was laughed at buying such a boring stock as it was virtually considered as dead money. Indeed MSFT had been dead for almost a decade since the burst of the dot.com bubble. After Bill Gates stepped down and appointed Ballmer as the next CEO, there were almost no innovations at all under his helm. Understandably why no one was interested in MSFT anymore or even you could say investors hated MSFT. Well, that was the time I found MSFT as a gem for long term investment. For those who really know me, you can easily understand how much passion I have for good companies at good valuation for my retirement portfolio via dividend reinvestment. This is the only way I know of that can efficiently build up your wealth in an exponential fashion but with very limited downside risk and maintenance. To me, long term investment should be boring, so much so that you virtually don’t need to put too much effort to watch and worry about it but just sit back, relax and pick up your fruits at the time when you mostly need them. So here is my goal for my retirement portfolio that in the next 15-20 years when I reach the age that I really don’t want to do anything for money, I will have a reliable income source from the portfolio that will be more than sufficient to support all the expenses for a good living for the rest of our life. Dividend reinvestment (DRIP) is the only way that does not require a big amount of money to start with but the only thing you need to give is holding a bunch of good quality dividend growth stocks and let time do the magic. That’s why I think long term investment should be boring, not fancy. And MSFT just fit this category when I initially bought it many years ago. You see, when almost every investor hated Ballmer for lack of innovation, he was actually increasing the values of MSFT tremendously under his watch. That’s why MSFT has become such a strong cash cow that generates so much money beyond what it knows how to use it. As such Microsoft has become the safest company in the world, more safe than the US government bonds (technically). Given the ever increasing cash pile it is generating year after year, MSFT is among one of the best dividend growth stocks you can find. I even made an illustration with MSFT to show mathematically how just a small amount of money initially invested in MSFT with dividend reinvestment may easily make you a multimillionaire as long as you given it time and patience.  I have had no slightest regret to buy and hold MSFT since I bought it. On the contrary, I have pounded the table many times to alert my friends here to buy MSFT at its weakness.  Early this year during the turmoil of the stock market as well as a weak earnings report, MSFT dropped quickly at that time. I told my friends that I did not believe MSFT would go below $50. I was wrong as MSFT actually briefly went down to about $48 but really just very briefly. I of course were very happy to see this and took the opportunity to buy more!

While I’d love to see MSFT stay low and be boring for years to come, “sadly” I must say that I don’t think it would be a reality anymore. As notably we have seen since Nadella took over the CEO role, MSFT has drastically changed its strategy and is quickly and successfully transforming itself to become an innovative company. In addition to its traditional earning power that will continue for sure, MSFT has swiftly moved into the next hot money-generator via its cloud business. Quarter after quarter, its cloud business has grown in a fast pace and it is firmly establishing its leading role in this sector. Yes, it is still lagging behind Amazon in cloud but the gap is quickly narrowing down.  Additionally, there are two other innovations that MSFT is pursuing that may significantly enhance its growth power:

• Many of you must have heard the most fancy tech words today: Augmented Reality (AV) and Virtual Reality (VR). If not, simply google them.  AV-VR is not imagination anymore but is quickly becoming a technology that will revolutionarily change our daily life in the near future.   Just think about what the smart phone means to our life now.  AV-VR will soon become an essential part of our life that we cannot live without. It is estimated that AR will growth at 75.7% a year and be worth $117.4 billion by 2022 and VR will grow at a compound rate of 57.8% over the period and be worth $33.9 billion by 2022. Microsoft has quietly worked in this field and will likely become one of the leaders down the road. The most concrete example is an innovative product MSFT is working on, called HoloLens, that is a combined AR-VR headset, containing an onboard camera as well as a computer hooked up to 18 sensors that transmit a tidal wave of data every second. Believe me, it will be a huge hit when it comes into the market, probably something like what iPhone first hit the market.  See the demo here.
• In longer term, MSFT may also become a leading player in the artificial intelligence field. It was just announced by MSFT that its researchers will attempt to “solve” cancer by treating the disease group as information processing systems that can be modeled and reasoned, and then use sophisticated analysis tools to better understand and treat cancer. “That is, the key to rendering cancer harmless is to find out which biological processes need to occur for cells to turn cancerous. And then just fix that. In other words, cancer is like any software bug: Figuring out why something isn’t working correctly—debug it—and then fix it.”  This is not something that will become reality soon but a long-term investment that may generate billions of dollars for Microsoft in the future.

I really have a mixed feeling about what MSFT is doing: on one hand, I truly hope MSFT will just continue to be “dead” money with its share price stay as low as possible but with increasing dividend growth. On the other hand, I’m happy to see my beloved company become a leading innovator again with increasing share prices. At the moment, MSFT is just challenging its strong resistance at its all time high around $58. It should be really easy for MSFT to break out beyond $60 soon. How high can it go? Just use your imagination! To me, holding MSFT is like a worry-free investment win-win all the time: when it goes down, I know my dividend reinvestment will be doing better; if it goes up, I’m happy as well.

MSFT is not really cheap anymore but from time to time it may become a great buy. So when I shout next time, don’t ignore me!!

[Sorry for the long reading that my bore you, but when I start to talk Microsoft, I cannot stop :)]