Betting against this giant is painful

Most of people reading my blog, if not all, must know that I love Microsoft (MSFT), a company used to be dead money for over a decade following the dot.com bubble burst in 2000. However, for my way of long term investment with dividend reinvestment, MSFT fit my strategy perfectly when it was “dead” while still making tons of money from its matured businesses no one cared much anymore and paying increasing dividends at an amazingly high growth rate (roughly 15-20% annually). So my journey started about 10 years ago when it was still in $20s and aggressively accumulated more when it was still cheap in valuation till $40s. I was pounding the table several times here to call to buy when it tanked due to some short term scary news. Of course, not many people would listen due to lack of exciting news for MSFT. After all, who cares about such an old cat. We need high flying stocks chased by the Street! I often was told whenever I talked about quality dividend stocks including MSFT. Sure, your loss, not mine if you don’t listen to me on this, my usual response to such kind of comment. Quietly MSFT has moved up aggressively in the past two years and is changing hands around $110 now. My paper capital gains range from 2-5 times depending on my cost bases. I should not complain in any sense right? But I’m really not thrilled about the capital gains to be honest. I really wish MSFT could still keep low key as “dead money” forever but keep gushing out increasing dividends. Why? Because I don’t believe the potential capital gains from MSFT share price increases in the future can make me 20-30 times gains at the end. However, low share prices with increasing dividends can really make me such kind of return with dividend reinvestment (DRIP) over time. The fast appreciation of share prices, while making me psychologically happy, may substantially slow down my exponential gains I’m expecting from MSFT! Too bad!! It is just a mental happiness at the expense of long term explosive gain at the end. If you still don’t get the point here, please read this blog regarding the essence about DRIP and also here about the mathematical demonstration how MSFT DRIP can make you really rich without much efforts, especially when maintained at lower prices.

So why I’m such a fan of MSFT as a long term investment? For one, it is the only one of the two stocks in the world that as a triple A credit rating, the highest credit rating and the safest stock to own. In other words, it is safer than anyone else, even the US government in terms of the credit rating! To me, my money in MSFT is virtually the same as my money in the bank but earning high and increasing interests year in and year out! This allows me to efficiently increase my earning power from MSFT via DRIP. You really don’t need to worry about the cash earning power by MSFT. If you don’t know, MSFT has 16 businesses that generate sales over $1 billion annually (see the update here). You rarely see such kind of companies with so many blockbuster businesses. If all the companies would eventually go bankrupted, you can safely bet MSFT would be the very last one to fall! Like it or not by me, Microsoft is silently and fast transforming itself to a high growth high flying tech company again. Believe or not, MSFT is at full front in virtually all the major megatrends that will shape our future. Below is just a few examples to give you a taste what Microsoft is doing:

• Office 365: nearly $10 billion business
• Xbox: very popular $10 billion dollar gaming business
• Marijuana: legal aspect riding on the megatrend of the global legalization of marijuana
• Cloud business, quickly closing the gap with Amazon, the leading cloud company
• AI business: Microsoft is one of the leading company in developing AI solutions (see examples here)
• Blockchain future: investing heavily in BC, e.g. in Xbox (see here) and in tools for Azure/Cloud (see here) 
• HoloLens headset technology: a transformational technology that may totally change the way we learn and communicate (see here regarding 5 things HoloLens can do and here with an amazing video demonstration). Here is the WSJ report on using HoloLens for efficient medical training. 

So betting against MSFT will only mean pain to anyone who dares to do so. I’m guilty of that to some extent unfortunately. While my like for MSFT has never tampered but only increased over the past decade, MSFT has become too hot as a stock with very rich valuation lately. Since my position is relatively large (the largest one in my portfolio), I have been trying to hedge against any short term weakness that for sure may happen from time to time. But in the past 2 years or so, it has been a painful endeavour. It has been surpassing my strikes again and again to make me really stupid to do so. For the most recent earning report last week, I thought there was really a good chance that it would meet with negative responses, as the expectation was very high for now. But it only did so for just a few minutes and then shot up to an all time high again. Having said that as I have alluded to before, I’m also very active in doing short term trading with MSFT, mostly betting for long when the market tanks to bring down MSFT as well. It has been a very profitable trading with MSFT to have greatly alleviated my hedging pain with my covered calls. At some point, MSFT will for sure come down to bring back the euphoric expectation to earth. So right now it is definitely not a good time to initiate long term position with MSFT. I wish a pounding the table moment for MSFT will come again in not so long future!