No doubt, this is quite a different era for Microsoft. Just a decade ago, Microsoft was under attack by competitors but not through innovation and new products, rather through courts and legislation as many companies and government officials thought Microsoft was too dominant and was abusing its monopoly. How things have changed…. In a matter of a few years, the company at the roots of technology has ventured into different markets and has enjoyed some success but now looks like it will be in a difficult situation for the next few years.
To make matters worse, Microsoft is currently under attack in more and more markets to the point where we can ask ourselves what its future will look like in the near future. Crazy? Barely. Over the next two weeks, we will be publishing a series that will look into Microsoft’s success in competing against Apple (the famour Mac vs PC war as well as handheld devices (Ipod vs Zune), Google (Search, Software such as Office as well as operating systems) and even gaiming as XBox competes with Sony and Nintento.
And with Bill Gates heading out of the company slowly, it is not clear where the leadership will come from in the next few months and years. And with Microsoft recently doing its first bond issue, it is clearly trying to get even more cash, but to what purpose? That is not clear. And Microsoft recently launched “Bing”, a major attempt to regain some momentum in the lucrative and key search business. Anyway, without further wait, here are the subjects of the next 4 posts:
2-Apple (PC vs MC) & Zune
3-Mozilla (Firefox)
4- Nintendo
5-Google (Monopoly, Office, Windows vs Android)
6-Google (live.com, bing, monopoly)
As well, we will look into different ways we beleive Microsoft could use to become more competitive and insure that it can not only survive but also strive in the next few years. It could be debated over and over if Microsoft is getting too spread out as it tries to compete in multiple industries. Will Microsoft go bankrupt soon? No, I don’t think anyone could pretend that. But is Microsoft going to become increasingly irrelevant? That might be a legitimate question and one that no one knows the answer to. But we certainly have a few ideas and we’d also love to hear your ideas on the subject.
Target date funds? Ever heard of them? They are basically funds that are set up as either ETF’s or mutual funds. Not much of a difference between the two, the fees are obviously more important in mutual funds. Anyway, so these funds generally have a date attached to them that they target to. For example, being almost 30, I can expect to retire in 2040 so in Canada I could invest in the TZV Ishares fund. The advantage of course is that in theory I could be investing a significant amount of my savings in this fund as it is diversified but also the fund’s asset allocations will change over time to take on more risk in the earlier years and as retirement approaches, this fund would take less risk and become more geared towards fixed income securities.
What is a company to do when its ultimate competition is “the classic”, the one and only brand that has been at the top of its market since its market came to life? That is the question Pepsi marketing employees ask themselves every single day as they try to win a few points of market share every year. To a large extent, Pepsi continues to do that and now enjoys over 30% of the market share, still shy of Coca-Cola’s 42%, but still a very solid second.
What is the top down approach??
First off the stock picking. This one is the easiest to understand as most investors (especially those not working in the investment field) will usually go through this. It is basically when you hear or read about a company, decide to read about it, either the financial statements, or analyst recommendations, etc. Then, you decide to either invest or not in the company. Fairly straightforward isn’t it? There are obviously many things to be aware of when using stock picking, especially those that clog all of their picks in the same sector. Think you know who will find the next diamond or gold mine? Want to invest in the company? That is fine. But just remember that you do not want your retirement to hold on finding that one company. Ideally, you would not be investing too much in one specific field or industry.
Now let’s move on to the top down approach. This where knowledge of the economy helps. Basically, someone using this method would be looking at data about the world economy. You can then find specific areas of growth or scenarios. Let’s say you predict a rebound of the US economy in late 2009. Then, depending on the stage of the economic recovery you are targetting, specific industries or sectors usually perform better in those periods and you will be looking to invest in those areas. Once you have determined your scenario and industries, you will be looking at the specific companies that you expect to do well in this scenario. It is certainly not an easy or quick process to go through but you can usually be a lot more diversified and perhaps invest in companies that you never would have thought of initially. You could for example imagine that the US government will be investing a lot in the health care industry and getting a more central and public system under way. If that is the case, chances are that companies that can provide a more universal IT system that will replace each state’s system. In that case, you would probably be looking for an IT company that can provide a solution. In the same way, the energy policies of the Obama administration tend to promote green energy sources so you would think that solar energy companies could do very well in this environment. These are just a couple of examples but I think they illustrate how the top down approach might require more analysis but can provide with better picks in the long term…