Monday, May 5, 2008

Game Planning for This Week

This week may be a more realistic look at the market than last week. I've continued to be in favor of the weak dollar game plan for awhile. Long oil services, steel, infrastructure, and short financials and Russell 2000. There is some strength in tech right now, as Apple and Google are zooming again.

I think Microsoft got lucky that they didn't get Yahoo. It is tough to continue organic growth to supply meaningful profits when you get as big as Microsoft, but its not good to fall into the habit of making big acquisitions for too much money. Looking at Google's strategy, you can find a few dislocations that make them a better investment. They focus on creativity more than any of their competitors. In the article I linked last Friday, which had an interview with Google co-founder Larry Page, I found something he said to be quite interesting. He said that they have a small amount of people working on projects that have a ten percent chance of succeeding, but if they do, they will be huge profit-drivers. A game-changing situation. It is smart risk to take for a company like theirs. And they will get a few of those risks to pay off as they have in the past. The company itself was built on that type of risk. My point is that when companies get too big, they lose sight of how they got there. The fall into the trap of protecting what they have and struggling to find new ways to make money. They overpay for bad acquisitions and the shareholders eventually lose confidence.

We'll see what lies ahead this week.

1 comment:

Bill G. said...

I agree that Microsoft is better off without Yahoo. Peter Lynch called these type of aquisitions deworsefying. Better to stick with their core business, instead of building a conglomerate through over-priced buyouts.