Computer speeds are not growing the way they once did. It used to be that we could count on the speed of computers to double every year or two, but no more. A result of this fact is that consumers have less pressure to replace their computers as quickly as they once did. Microsoft makes money by selling a new copy of their operating system with new computers. Fewer sales of new computers will reduce Microsoft’s sales. In addition, dropping computer prices reduces the price Microsoft can change for their operating systems. The end result is a bleak future for Microsoft stock.
Let me begin by saying that I don’t know whether the premise of this story is correct. Even if the premise is correct, the conclusion may be wrong for other reasons. One could certainly concoct many other stories related to Microsoft stock that focus on their business in different ways. Some of these stories would be bullish and other bearish.
My real point is to illustrate the kind of reasoning that used to drive my investing behaviour. From listening to others who invest in individual stocks, I find that their reasoning for liking or not liking given stocks tends to boil down to a short story like the one above. I used to check a company's financials as well, but in the end my investing choices were usually driven by these short stories.
I’d be interested in finding out whether my story above actually affects anyone’s thinking about Microsoft stock. However, I have undermined the study by admitting that I don’t believe it myself. (I don’t believe it is wrong, either. I just don’t know.) I’ve also undermined my story’s impact by calling it a story rather than a “stock analysis”. I also failed to include a bunch of pointless charts of recent stock performance that might lend greater credibility to the story.
If I have any talent at creating such stories maybe I have a future as a stock “analyst”. It’s more important to sound compelling than it is to have a record of correct predictions.