Microsoft's Anti Innovative Culture

     I just read Nat Brown's blog "Stupid, Stupid xBox!!" http://ilikecode.wordpress.com/2013/02/12/stupid-stupid-xbox/.  Nat was the founder of the original xBox project at Microsoft.  No one better to provide insight into the culture over at Microsoft and does this post say it all!!!  Growth is predicated upon innovation.  Companies that cease to innovate, cease to grow.  Sure, you can sustain a company for an extended period of time with a strategy of purchasing innovation but this will lead you down the path of low returns if any at all. 
     A great example of this in recent history is Hewlett Packard.  Hewlett Packard is at the top of James Chanos's list of stocks to short.  James Chanos of Kynikos is probably the most successful investor at shorting companies over extended periods of time.  He recently hypothesized that Hewlett Packard's R&D was used to purchase other companies.  Usually, by the time you purchase another company's great idea the growth cycle has already been sucked out of the concept doesn't add incremental gains to the acquiring company.  This strategy has turned Hewlett Packard into a non growth investment.
     Microsoft appears to be following the same category.  Their culture is no longer supportive of innovation and according to Nat Brown.... stifles innovation and fresh ideas.  There are different types of CEO's.   There are those that are great at building a company from the ground up and then there are those that are great at managing an established company.  Microsoft is no longer the upstart company that Bill Gates and Steve Ballmer created.  Perhaps their best days are behind them.  Nat Brown's blog highlights not only Microsoft's inability to succeed in the gaming space... but the overall mindset that has plagued the company for the past 13 years.  Bill Parcells, who is a Hall of Fame Football coach, is coined with the phrase "You are what your record says you are."  Microsoft's stock price over the past 13 years has been flat to negative.  Microsoft is what it's record says it is. 
    Nat's blog will give you more of an insight into the investment profile of Microsoft than any financial analyst on the street.  Thanks to Nat for this insightful piece on the gaming market and where it is going.  More importantly, how Microsoft is being left behind. 

Netflix Focused On Kids' Content

     Netflix announced a partnership today with Dreamworks Animation to create an original series for kids.  After several missteps in the past few years at Netflix, I think they are steering their ship in the right direction.  Kids watch  more TV than adults and are limited to a few content providers on cable TV.  Combining the strategy of developing their own children's content with the already established agreement to distribute Disney films on their streaming service, Netflix has recreated their value proposition.  Not only are they making the correct move in developing their own content, they are partnering with proven leaders in content creation.  Disney and Dreamworks Animation are both at the top of the class when it comes to creating successful and valuable content. 
    It has been a remarkable story to see Netflix become a success, fail miserably to the point where it appeared they could go out of business and be overtaken by their competitors and then to quickly refocus and get it right.  Congrats to the leadership of Netflix.  Reference to the Netflix and Dreamworks partnership can be read here...http://www.cnbc.com/id/100450724. 

ETF's vs. Mutual Funds

     The topic of the day is ETF's vs. Mutual Funds.  ETF's are the new marketing innovation that most large financial institutions are trying to promote.  There are different variables of the ETF instrument but the underlying theme is similar to mutual funds which is to blindly give your money to someone else to invest for you.  These type of financial products are great for financial institutions because they can profit from an investor without ever meeting them or having to negotiate with them on price.  And why are people blindly giving their money to someone else to invest for them?  Would +Carl Icahn do this?  What about +Warren Buffet?  Clearly the answer is no. 
     While the fees may be lower for ETF's than Mutual Funds, it is still a blind investment with no access to the decision maker of your money.  It is important to remember that no one cares more about your money than you do.  It is up to you to be more proactive in your investments.  Don't rely on lazy investments.  +Andy Grove once wrote a book titled "Only the Paranoid Survive".  So true.
     Here is more information on the debate...http://www.cnbc.com/id/100449585.

Tech Bubble Remembered

I read an article (http://www.cnbc.com/id/100446727) indicating that the Nasdaq was set to close at it's highest level since November 9, 2000.  That level of 3,183.95 is well off it's all time high of 5,048 set on March 10, 2000.  This led me to reminisce the tech bubble and what has happened since that time and what really drives and index?  Back in the late 90's and early 2000's, the largest components of the Nasdaq were driven by companies such as Microsoft, Dell, Intel, Cisco, and Yahoo.  These companies were so large compared to all the other companies comprising of the Nasdaq that their stock prices controlled the direction of the Nasdaq index.
     I thought it would be a good idea to compare the stock price for each of these companies going all the way back to March 10, 2000 and see where they are today.  Here is what I found using Yahoo Finance's historical pricing application:
Company                           March 10, 2000               February 11,2013             Percent Change
Microsoft                                $38.31                                  $27.69                          -27.72%
Dell                                         $50.44                                  $13.65                          -72.94%
Intel                                        $47.24                                  $21.01                          -55.52%
Cisco                                      $65.66                                  $21.20                          -67.71%
Yahoo                                     $89.03                                  $20.80                          -76.63%

 The largest companies of the NASDAQ index today are the following:
Company                           Market Cap
Apple                                 $446 Billion
Google                               $258 Billion
Microsoft                           $230 Billion
Oracle                                $165 Billion
Amazon                              $119 Billion
Qualcom                            $115 Billion
Cisco                                 $112 Billion
Intel                                   $104 Billion


The above companies will drive the Nasdaq Index over the next 5 years.  It will be interesting to see what companies will dominate the index 10 years from now.