This is anecdotal, not empirical, but the two smartest value-oriented investors writing blogs just simultaneously threw in the towel on Microsoft ($MSFT). In both cases, the trigger was the new Windows 8 operating system. The techies seemed to have known for awhile that 8 would be a letdown, it is well documented throughout the tech blogosphere. But now that dissatisfaction is making its way through the investing community.
First, my pal Vitaliy Katsenelson, the brilliant investor and author of Contrarian Edge. In his latest article at Institutional Investor, he begins thusly:
I sang love serenades to Microsoft in the December issue, but a few weeks ago we sold our shares of Microsoft. Because we believe the stock is undervalued, that decision was not easy. What changed? A very important part of my thesis was the success of Windows 8, an operating system that Microsoft made for both PCs and tablets. When I saw Windows 8 demonstrated in early 2011, it looked like a very innovative, un-Microsoft-like product. Windows 8 was very important for Microsoft’s response to Apple’s iPad — a tablet that was deservingly stealing market share from low-end laptops. Windows 8 was supposed to take Microsoft to the next level, leapfrogging Apple and Google.
A few months ago Microsoft released the public Windows 8 beta, and I tested it out. To my shock, I found it to be a very confusing product. The interface was slick and visually very appealing, but I simply could not figure out how to use it…
And then last night I saw John Hempton, legendary blogger and hedge fund manager at Bronte Capital, say that he had also sold out of Microsoft because of the new OS:
Seldom have I looked at something that is a major long in the portfolio, changed my mind, sold the entire position and continued selling to go short (albeit in a small way).
I just did that on Microsoft. The immediate trigger was Windows 8 – but the thinking has been longer and harder than that.
There are important points made in both articles, I highly suggest you read them – even if you disagree.