About Murray Cass Expertise I am eager to help investors find their way through the muddle of tech investing. I can answer questions concerning tech investing, financial reports, stocks, and options. Having worked in the computer industry for over 20 years I have a good general knowledge of computer technology. I have read over 100 investment books -- mostly the old ones. I spend my time doing investment research, attending annual shareholder meetings, and managing portfolios.
Experience Professional Engineer, MBA, over 20 years experience in computer industry, 9 years intensive investing experience.
Expert: Murray Cass Date: 4/24/2004 Subject: Why did the market like MSFT's earnings report yesterday?
Question Mr. Cass,
I am a 30 y/o amature investor. I have had a position in MSFT for about 6 months. Could you please explain why Microsoft's earnings report on friday was so positively received by the market. I read the report and understand that quarterly profit fell after legal charges, but revenue rose. From some books I've been reading I was under the impression that there is no greater indicator of a stock's stregth than a cosistant increase in current quarterly profits. Why did the market ignore the bad 1st quarter profit; was the increase in revenue important enough to overshadow the large drop in quarterly profits? The reason I'm asking is because if I had predicted this reaction I would like to have increased my position. Thank you for your insights and opinions.
Answer Hello BC,
Yes net income was down and revenue was up. There are lots and lots of investment books out there. Some are good and many are quite bad. A good company from an investment perspective is one that has consistent increase in quarterly profits. That's true. But two quarters do not make for a trend. Any business has ups and downs. Striving for a perfectly linear increase in profit would be a ridiculous goal for any management team. Gaining market share, entering new markets and other long-term goals are much more important than the very short-sighted goal of consistent increases in quarterly profit.
Please understand that predicting market reactions to earnings increase is not an easy thing to do - even for market veterans. Some investors focus on the earnings just released while many also focus on the forecasts that are invariably part of the announcement. I would suggest you not waste any time trying to predict reactions to earnings releases. Focus more on how the company is doing against its long-term goals (3+ years).
Re. Msft: you must eliminate one-time charges like legal charges to do a proper year-over-year comparison of earnings. Much more important that results is forecasts by management. Revenue growth is also sometimes viewed as just as important as earnings growth. And don't forget key new markets like x-box.
Increase you position if you are happy with the company's performance not if the market is happy with the company's performance. In general you will be a more successful investor if you do the opposite of what the market does.
Be very careful when trying to understand the market. It is not as easy as some preach. Track records speak volumes.
