Thanks for posting and you make some excellent points, and I wish I had time to comment on all of them, but I’d like to talk about one issue in depth — cash. I think that was the most intriguing to me, because I think the others can be justified relatively easily.

So I was thinking, okay, if US$40 billion is too much, then what are other people saving in terms of their size? Apple is a much smaller company, but yet they have US$8 billion in cash + short term investments… is that bad too?

As it turns out, the answers are less than clear, and here’s why. First, Microsoft has a market cap of $280 billion. Second, although most people say Microsoft has $40 billion in cash, they actually mean cash and short term investments. In actuality Microsoft only has $2 billion in cash and cash equivalents, and a whopping $38 billion in short term investments - which has growth.

So how do other companies stack up? Well I looked at Apple, P&G and GE as some good companies in my mind that may have their financial houses in order, and here’s what I found.

GE has a market cap of $360 billion but only $11 billion in cash with no short term investments. This may not sound like a lot by comparison until you learn that they also have $323 billion in Account Receivables, which is money that is owed by third parties. This is money that typically doesn’t collect interest, unlike short term investments.

P&G, which has a market cap of $180 billion, has $6 billion in cash and $1.5 billion in short-term investments, and very little in AR. This seems like a very good mix of all of them. I like P&G as a company and I will probably be talking more about them later on in my writings.

Finally, Apple, which has a $51 billion market cap, has $3.5 billion in cash (more than Microsoft) and $4.5 billion in short-term investments. Interestingly both Apple and Microsoft have similar ratios of “cash” to “market cap”. So why pick on Microsoft and hail Apple?

Obviously, why certain companies have more cash than others is more complicated than numbers on a balance sheet, but if I were trying to figure out what to do with my cash I’d want it in short-term investments like Microsoft is doing so it can at least grow. I’d also like to buy their stock BEFORE they figure out how to spend it! They will spend it, mind you, it’s just a matter of time.

Best!

First, I just want to say that I love this website! You guys are extremely entertaining as novice investors, but nonetheless full of great ideas.

However, I am slightly concerned with your Microsoft recommendations. Understandably, you are expecting great things from MSFT’s new XBox. But do you really think that this will be the spark to ignite Microsoft’s dwindling fire?

Microsoft has been trading between $25 and $30 per share for the past three years. It is typically used by many institutional traders as a liquidity hedge throughout their daily trading activity. (i.e. Traders know that they will be able to buy and sell MSFT shares on a quick and ready basis with minimal, if any, loss affecting their position.) It has become more of a very short-term and liquid savings account for traders throughout their day.

Furthermore, I am not certain how MSFT’s massive cash position would a good thing, particularly from a value investor’s perspective. As an investor yourself, would you rather keep all of your savings under the pillow like my grandmother or put it somewhere that guarantees returns to you and your family (i.e. shareholders).

For the time being, I believe MSFT may not be the wisest investment. Its products have reached a mature stage of their product life cycle and the company has become an idle cash hog, especially in comparison with firms like Apple.

What happened to MSFT’s innovation? I think it is going to take a lot more gasoline to get this fire going again.

Let me know your thoughts!
Chris V.