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Investment Advisor Alleges MS Financial Fraud
Bill Parish, of investment management firm Parish & Company, claims Microsoft's stock prices may be artifically inflated, and that MS may actually be losing money instead of generating huge profits. Parish says you haven't heard his claims before because "...Microsoft is a significant advertiser in the major media [and] it has been hard to get exposure there." Slashdot offers no opinion one way or the other on the acccuracy of Mr. Parish's allegations. Please read
his report and decide for yourself.
An insider at Micro$oft told me that they are losing about ten billion dollars a year due to LINUX and FREEBSD. That is expected to balloon to hundreds of billions of dollars over the next ten years. The insider speculated that Micro$oft has about enough money to last another two years before they go belly up. So start weaning yourself off of Micro$oft Window$ as soon as possible .. supposedly Bill Gate$ goes into a violent fit of rage every time somebody mentions "LINUX" or "FREEBSD"
hee
Well, I agree that people who don't understand the basics of investing get what they deserve to some extent; it certainly would be implausible that they understand the risks involved, for example.
But the idea that index funds are only suited for idiots is just, um, stupid. If you wanted to buy stocks and I told you that I had a mutual fund that out-performs more than 2/3 of all funds on a year-to-year basis and outperforms almost every mutual fund in the long-term, you would probably be interested. If I told you that, in addition, you wouldn't end up paying cap gains taxes when all you did was buy and hold the fund, you should be even more interested.
And this magic fund is, of course, the cheapest index fund in the sector of your choice, or just the S&P500 index if you really don't want to be burdened with the choice. And, for heaven's sake, the idea that index funds, just because they don't require lots of effort or knowledge, are somehow only for stupid people is just silly.
It's not that you couldn't do better picking your own stocks, but you would be accepting more risk in doing so, and that's not always appropriate, no matter how smart or stupid you are.
Babar
This is a bunch of fluff. Basic math? Try first year accounting. This guy obviously doesn't understand GAAP (Generally Accepted Accounting Principles), which the SEC requires all publicly traded companies adhere to (not to mention the IRS). That's the whole point of having audited financial statements. This guy has received far more attention than he should have. He's a crackpot.
Related perhaps? It seems to be relevant to the MS and DOJ trial, but if it means changing securites rules too...
Click Here
Exactly why Slashdot has to be very careful about what they post as "news". They can say "no opinion" until they're blue in the face, but the very fact that this "news" is posted here poses some serious questions. Let's let the SEC decide...
Click Here
Now, what would be a concern is if Microsoft was so dependent on this tactic that they felt the need to do any of the
followint things:
1.Issue an ever increasing number of options, with the possibility of accelerating dilution or having those options
appear less attractive as inducements to sign up with the company
2.Manipulate earnings so that the stock price continues to grow as steady-as-she-goes, so that the options ploy will
always work.
3.Manipulate the stock price itself, so that the options are always exercised and the expense of employee
compensation is kept low (or even lowered further)
Well, forgive me for being a little puzzled here, but I was under the impression that this was what they were doing.
Maybe the guy has a point in that the gullible public should be made more aware of the problem (and I freely concede that this *is* a problem: only not limited to Microsoft, not having such huge importance, and not likely to lead to the financial meltdown of the free world). But financial professionals know the situation quite well. And the measures that he proposes against Microsoft are quite ridiculous.
I disagree, mainly for the large amounts of cash involved. M$ had basically lied, saying they are making 30-50% profit margins when they are not. This keeps raising their stock price (and get's them into indexes and 401k) to a level where they recieve a constant demand. The problem is the value behind the company. Everybody here knows that the only value that M$ has in on paper. Paper that says you can't copy their software, paper that says you must buy a license for every 5 users, etc. They have "nothing" of real value. Take this paper away (or reveal how transparent it is) and you realize that the highest valued company in the world HAS NOTHING OF VALUE. Then you factor in the large number of people whose retirement is tied to that value, and you see the scope of the problem.
Their accounting practices also make themselves look better than other companies and then when John Q. looks at who to invest in, he picks M$. Thus IBM, HP and others, whose accounting is honest, look like crap and they must use the same dishonest technique to create a competitively profitable image. M$ is the image making machine, they have created a huge image of a profitable company that is made out of paper and burning away from the inside.
+&x
A news item this morning (R4 Today programme) described some government moves to make stock options MORE popular as a means of rewarding employees, with particular reference to hitech startups.
I wonder if it's coincidental that it follows Mr. Tony's recent heart-to-heart with Bill Gates ?
One debate class too many? I think he was providing a hypothetical psychological explanation for this guy's paranoia. Just because the guy reiterated a point doesn't necessary mean that he actually believes that point. He could be emphasizing it to make himself sound more credible. Funny that you should notice one tactic of argument and ignore another...
"the ideal amount of time to hold a stock for is forever".
Well, if only I can be like Mr. Buffet, buying a large chunk of stock of ABC Inc. and sit in the board room and instruct the company buy supplies from Corp. XYZ (incidentally, Mr. Buffet also has a few shares in it).
I am just pointing out the limitation of the theory of "hold on forever".
Winning = Fundemental + Technical.
--- You make things foolproof, and they'll find you a damn fool.
Subject: Your FUD campaign against Microsoft
Your so called 'report' available at http://www.billparish.com/msftfraudfacts.html is obviously reaching to pull down Microsoft and boost your own business.
I think your report is biased on your efforts to bring attention to yourself without ANY backing.
You make NO references to any hard data or reports. This discredits you and your report entirely.
You are manipulating the internet as media in the same way you accuse microsoft of locking you out of successfully reporting. I believe the media thinks you're full out of it and that's why you haven't managed any access to it.
I believe your report unwisely introduces Fear, Uncertainty and Doubt within the internet comunity, aimed at tearing down Microsoft's stock value.
Disgusted,
Louis Florit "got Be?"
Miami, Florida
And yet... the man talks like an insider. I don't see anyone challenging his facts, and they're all over the article- stuff like this: This stuff is _all_ _over_ the article. Being sort of obsessional is normal for an accountant... and in this case the obsessionalness has produced a guy who singlemindedly tracked down seemingly everything Microsoft is doing, without even understanding what he was dealing with. He seems to think that he could expose their total fraud and everybody would go, "Oh! Gee, OK, let's stop doing that, we were wrong!". Stupid- but I don't see how that challenges his assertions, it only challenges his media savvy and understanding of human beings (which I can sympathize with).
But this story isn't _about_ human beings, except in that they try to justify themselves- it's about obscure accounting cheats and tricky ways of committing fraud. In that area, this peculiar fellow has convinced me he knows what he's talking about- indeed, it's _all_ he knows- and I share his conclusion- Microsoft is built on accounting fraud, and as it takes over the entire economy (illustrated by its addition to Dow Jones- this fellow doesn't even get into the problems of having _any_ huge stock included on all main indicators- currently, when MS crashes _everything_ will go down, NASDAQ, Dow, you name it...), it poses a risk directly comparable to what happened to the Japanese economy.
This is serious stuff, even if it's being hyped by a peculiar fellow who doesn't understand the need to downplay his self-aggrandizement (probably doesn't even understand that's what he's doing, if I read his character correctly). Try and focus on his conclusions (when they don't consist of 'Appoint me to your 401K committee!') because there is a great deal that should be listened to here.
Companies CAN do this, but they aren't required to do so. Its usually done as a convience to the employee. Anyone that exercises stock options can take the stock if they want and run.
I agree that it's a widespread practice. That's probably why the FASB's proposed change to accounting for stock options was so heavily opposed by corporations. Just because it's ``widespread'' doesn't make it the correct way of doing business. I doubt that many CEOs and other high-ranking corporate officers would have been happy to see these stock options count against corporate earnings, possibly driving down the company's stock price, and directly impacting the value of their (paper) worth.
Did I sound like I was over-reacting? I'm just someone who realizes that the way things are going in this country, I may never be able to take retirement the way my parents did (not that I'm looking forward to many years of sitting on my duff -- I'd go stir crazy!), and I do plan on keeping close track of how my retirement money is invested. Many people do the same thing to make sure that it's not invested in some company or country's currency that doesn't pass their particular brand of political correctness. Are they over-reacting? (OK, maybe -- some of these folks get a little extreme.) I think that watching out for investments that could fall flat on their face is a prudent activity. Is that over-reacting? The fear of this accounting practice may be the financial scare du jour and will probably blow over soon. Let's hope so, eh?
As for the Parrish study being anti-Microsoft: I never read that into it (though others might). I think the study was opposed to the specific accounting practice that Parrish believes is not much more than smoke and mirrors. Microsoft's having such a huge capitalization (and with so many people dependent on its stock value) is, perhaps, the best or, at least one of the most visible, examples of a company that uses this accounting practice.
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..outlines and says how they have been doing each thing.
+&x
I've been wondering about that too.
Everyone, including recent comments from none other than Ballmer himself, seem to believe that Tech stocks (including Microsoft) are overvalued.
Greenspan said something awhile back abound overexhuberance in Tech stocks, too. Both Ballmer's and Greenspan's comments caused a momentary dip in Tech stocks, but they picked right back up in a week or so.
The market Analysts seem to be in la-la land. I can't find the reference now, but I saw a bizaare Analyst Opinion rating MS a 'strong Buy' because Windows 2000 finally had a ship date of Feb, 2000 and traditionally MS has done well in the months leading up to a ship date. Sheesh... Whatever happened to The Random Walk? Whatever happened to analysis?
Almost everybody in the Technology Press and Industry seem to believe that MS faces tough new competition in the form of (no particular order): Linux, Sun/StarOffice, Java apps, and Apple. Also, almost everyone seems to believe that the anti-trust finding of fact will go against MS, but the stock just keeps climbing and climbing.
Any sensible person would expect SOME kind of correction in MSFT soon. Even Ballmer warns that it's overvalued, along eith the other tech stocks.
I have heard the opinion that the broad market has not been doing so well as the Blue Chips. And that this has led to a false sense of security. When people see the DJIA climbing beyond all sense, they think the economy is doing better than it actually is.
It's almost like some Wall Street cabal feels there's no way to restore sanity to this market except to put MSFT on the DJIA before MSFT takes a big fall.
Intel was also added to the DJIA at the same time MSFT was. A lot of people seem to believe there's soft demand for processors coming up and it appears that Intel has stronger-than-expected competition from AMD. This would seem to be another choice to weigh down the DJIA.
Maybe I'm paranoid.
The above is pure opinion based on analysis. I have no inside information from Intel or MSFT.
>Slashdot offers no opinion one way or the other
/. has gotten to the point of where its not "News" at all, its biased, unobjective fodder for the linux zealot.
>on the acccuracy of Mr.Parish's allegations
Sure, the fact that its not beating down Microsoft with its righteous opensource/linux bat, Roblimo and the gang won't offer and commentary or quips.
Like I've said before,
Two very valid (and relevant) points that come out of Buffet's strategy include that:
The "split" issue appears to me to be a pretty irrelevant matter in this; the contention that splits result in people overvaluing stock seems to me to be irrational.
I don't particularly care what the stock price is, or how many shares I have; what I care about is the multiple, namely How much my holdings are worth.
As far as I'm concerned, a split should only affect the value of my holdings if there are a lot of people that don't understand basic arithmetic ( e.g. - multiplication) and who are incapable of coping with the simple equation:
If you're not part of the solution, you're part of the precipitate.
Sigh... This chap has confused the tax code wrt options with company profit/loss. Yes, Microsquish is overvalued at 61 times earnings undiluted which then becomes 100 times earnings (or there abouts) diluted. But just cuz they have to issue a tax form for the value of the stock - the price of the option when it is excercised, does not mean that it cost them anything. The stock is treasury stock. If they had to buy it in in the market, this would be a valid point, but since they are just issuing more of their toilet paper, it does not affect their total company earnings... This guy is out of his league with this sort of sophmoric commentary. Microsquish is overvalued, Microsquish does a number of things in the market that they shouldn't, Microsquish mushware sucks, but unfortunately, they make lotsa money from the gullable
Funny that you should notice one tactic of argument and ignore another...
Because it was blatant and well addressed in the actual article. Kaa's statments basically call the guy a liar to his face since he (parish) repeatedly said in the article that he was not biased for or against M$ in any way and even lauded thier office products while belittling the POS that is Win98.
Gawd, I wish there was a way to tell which posters read the article. This one was particularly long, the Linux comments don't come till near the end, for those of you that just scanned the first 5 pages.
+&x
This guy is insane and the fact that Slashdot even mentions this article makes a mockery of "News for Geeks". Look at this clipping from his "analysis":
"21) What is your perceptive on Alan Greenspan? I like Greenspan because he competent and courageous enough to say and do the right thing, a good example being explaining the folly of investing social security funds in the stock market. Most people still don't understand his arguments yet he is absolutely correct. Like most clarinet players; however, he does seem to have a bit of that brash optimism typical of many clarinet players. Few people realize that Greenspan started as a musician which was brought out in an excellent profile of his background in USA Today. USA Today is a very surprisingly good publication with respect to finance and economics. Even for a highly trained professional like myself, I find the paper mandatory daily reading."
WTF? This guy is nuts and rambles on and on. Plus, USA Today a good publication??? WTF?
My biggest complaint about the article, or rather the author, is his self-serving attitude. Statements like, "I'm the only one with the real story," and "Put *ME* on your inventment board," and "Hire *ME* as your keynote speaker" make me think he's more interested in advancing his own fortunes, rather than halting a truly dangerous situatiion...
Your Servant, B. Baggins
Right you are!
Parrish's web page did have way too much of "I did this" and "I found that" and "but nobody believes me" in it to not sound loony (for my taste anyway), but he seems to be a professional speaking about his own field of experience, AND some of his criticisms of company accounting principles fall squarely into the middle of current hot debates.
I was mostly iritated by the strange way the article was written with little or no hard facts to back it up, and conclusions before the 'facts', which in turn preceeded basics. I kept looking for the meat to make up my own mind and barely found any.
That's when my mind starts screaming CRACKPOT.
Still, it was interesting reading. I think the sheer size of Microsoft should finally convince them to start acting as responsibly as any other very large company rather than a tech startup.
I think this might be what some people have accused them of doing, but, so far, the evidence is hardly overwhelming. I certainly didn't see any direct evidence cited in the Parish report. If you want to find holes to poke in the idea that Microsoft is the best company to invest in at the moment, you can find them without assuming that the company is engaging in some nutty fraudulent activity that would lead to financial armageddon when it becomes unraveled.
That said, it is clear that if MSFT ever did suffer from an earnings growth hiccup, the consequences could be pretty severe in the current investment environment.
Babar
That's my experience as well. In fact, we had a storeroom with one wall full of spare HP/UX workstations in case there was a hardware problem with one of the systems on the bond trading floor.
One of my co-workers came from a trading firm that lived and died by its Sun workstations. Another former co-worker went to another trading outfit that was running UNIX on all of its trading systems.
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Jeez, next thing you now he's going to go after Amazon.com for never turning a profit despite WAY inflated stock prices.
:P
Pope
It doesn't mean much now, it's built for the future.
Absolutely. The trouble is, this is really stupid :)
You're absolutely right that small business suffers- not just small business- no matter _who_ you are, you had better be able to spin a line of hype and vapor because 'sound expansion' IS NOT ENOUGH. It used to be a _good_ thing to focus on building businesses and providing value and a going concern that could build on successes and expand to handle more customers well. Now that is actually a bad thing, because the goal has become cashing out and building vapor-business bubbles that are too good to be true- and aren't.
Our friend the peculiar accountant has a number of things right, and one of them is the bad effect of this sort of thing. Good companies with honest practices and sustainable expansion are choked off by vapor businesses growing like kudzu vines. In an era where the best way to earn money is to set up a pyramid scheme of options and tax dodges, and where the best way to do business is to outspend and choke your competitors and constantly lie and deceive with vapor and false promises and then make sure you can't be held legally accountable for the fact that you're selling crap products and trying to prevent anyone else from competing with you, is 'The Internet Age' really the right term? Wouldn't 'The Stupid Age' be more apt?
Some other financial schenanigans and giggery pokery is explained here:d ex.html
http://users.netmatters.co.uk//startingout/xat/in
Thad
I'm really not surprised. Several companies have artifically hyper-infloated values even though their business acumen has led the companies to constantly incur losses, especially in the case of certain Internet stocks like Amazon.com -- who have lost money every year it has been running, but yet still has a worth of more than $100/share. It seems to be the condition that the stock market hopes to inflate the prices of these stocks because they are being hyped so much by the media without the realization that some of them will never make a profit. Microsoft is no exception. People see it as a "safe" tech stock without taking into consideration factors in the industry that are costing MS money and probably driving profits below zero. It's almost like they are determined to bne ignorant of tech stocks.
The author of the above article is scared. It takes some serious balls to call the richest man in the world a thief and a liar. If you read the whole story (and I suggest you do, if this gets large-scale media attention it could be big) he gets more personal at the end. Mainly the guy has tried for some time to get this story out. No one seems to be refuting it, all of the attacks on the story seem to be directed at the man, not his facts. Perhaps that is why he is so scared.
So now he is putting his own name on, he's got a big whistle and he's blowing it. It mentions in the article that M$'s accountant did the same thing in '96 and got fired for it. He's sending it to everybody. Action has already been taken from PRNewswire (against him). He sounds committed and it often takes serious resolve to change entrenched assumptions. More power too him, I'm gonna send this article to my friends and ask that they do the same. Each may do his part to slay the evil behemoth, if they feel it should die.
It's a slow news day, lets see if we can get this story on CNN tonight. Turn the public's interest and awareness of Microsoft against them. Anybody know (or is) a reporter?
+&x
I am an accounting professor and I teach employee stock options to my financial reporting class. This arguement is silly. Although Microsoft's employee stock options have a value of about $65 billion (# options outstanding * (stock price - strike price))the accounting this guy is proposing doesn't make any sence. If Microsoft was going to account for the increase in the value of the employee stock option liability as an expense then they would also have to account for the increase in the value of their assets as revenue. That is mark to market accounting. If Microsoft accounted for things this way then it's net income would be the change in the market value of the firm over the year or about $200 Billion. Not -$10 billion.
This guy has no evidence for the stock market being fooled by footnote disclosure. Lots of people belive that to be true but there isn't any scientific evidence. At leat as scientific as The Accounting Review, The Jurnal of Accounting Research, and The Journal of Accounting and Economics get.
The peculiar thing about this is the double standard. There are many people who totally mock and scorn the concept of OSS because to simply donate effort and time to a thing, without expecting compensation, is considered at best stupid, and at worst positively evil and sinful (a point of view that always startles me. Helping others is _bad_?) ;)
Yet here we have someone who's weird but sincere, and is also doing what he can like a good little capitalist to increase his wealth and power of influence. _Why_ does this all of a sudden become a fatal PR blunder? I could see OSS-fiends becoming very critical, but what on earth is causing so many people to jump on this point? He's trying to sell himself and his judgement. Isn't that what you're _supposed_ to do? Are you suggesting that he should be doing all this thinking and scheming and writing for _charity_?
Personally, I think the problem is with accounting theory. Options are the large business equivalent of "Work for me for five years and I'll make you partner." FASB might be able to deal with it, but the IRS won't buy it and there is a big tax effect here.
To my mind, the best approach is to forbid direct company-to-employee option grants. Require the company to buy the option on the open market and tax the recipient for this largess. Using Buffett's logic, the option value should be taxed at the time of offer, shouldn't it?
>>If options aren't compensation, what are they?
Equity redistribution. Of course they are compensation, but there is nothing in our accounting theory that allows options to be treated as compensation. Conditional promises have always caused problems for American financial accounting and I'm not sure that any solution that doesn't give us a third party intermediary will ever solve the problem.
>>If compensation isn't an expense, what is it?
Equity redistribution. I don't disagree with the FASB's original proposal, but they did a lousy job of selling it and the original proposal failed to fit into any accounting theory. I realize that a lot of accounting decisions are very pragmatic, but this one wasn't good enough to fly.
>>And if an expense doesn't belong in the P&L, where in heaven's name does it belong?
Balance Sheet. The solution is terrible, but it is better than the prior solution which required no disclosure.
One of the biggest problems with the shadow option price that had been proposed by the FASB is that it still didn't deal with the fact that the options were speculative until exercised because the company retained all the risk.
Market-purchased options solve the objections of the companies, fully fund the options, and give fixed costs to the options.
It's good to see so many people being impartial about the target.
--
Gonzo Granzeau
Gonzo Granzeau
"Nothing the god of biomechanics wouldn't let you into heaven for.." -Roy Batty
It makes you wonder about MS's inclusion in the DJIA. These allegations are broader than those in the Michael Martinez case, but they fall into the same overall pattern. When MS's bubble bursts, it could cause a stampede effect among the investors who think the DJIA actually means something.
For every complex problem there is an answer that is clear, simple, and wrong. -- H L Mencken
I once got paid to do finance theory research work, working on code that compared Black/Scholes calculations with the results of computations coming from a similar calculation using discrete steps. I presently have about $10K invested in index funds. It would be pretty silly for me to imply that index funds are only for stupid people, and that's certainly not what I said.
Index funds most certainly are decent investments for diversifying away risk; those that invested in index have often done better over the last couple of years than those investing in other forms of mutual funds.
The point was that those that don't have the basic knowledge ( e.g. - to know that Value = Quantity * Price ) to invest in stocks with a faint bit of intelligence should put their money into investments that don't require that attention.
We've got people who haven't the rationality to evalate what they're doing deciding that they can become "Day Traders" at E-Trade and AmeriTrade. I don't oppose people buying some stock; that's liable to be educational and diversify ownership. But naive new investors certainly shouldn't jump into the shark-tank of daytrading. That's a really dumb move.
If you're not part of the solution, you're part of the precipitate.
Slashdot offers no opinion one way or the other on the acccuracy of Mr. Parish's allegations.
Usually the folks at Slashdot offer some sort of comment or opinion about the subject because, after all, we all DO have an opinion. Why no quirky remark about this? Is it because we are afraid that an M$ lawyer will read and sue us for twice of what we DON'T have?
Does this mean I cannot post any comments about Microsoft, and that I must be afraid of them also?
This kind of censorship only validates Microsoft's monopoly. We are scared.
NOTE to M$ Lawyers: The opinions expressed in the preceding post are those of the Author and do not necessarily affect those of Slashdot or Andover.Net.
Looking over this article I'm not greatly impressed. Stock values and gaining/losing money are just too hard to gauge without an extremely rigorous model, and this guy hasn't impressed me, or mentioned much I hadn't already heard about. Many very intelligent people have serious arguments about the financial health of entire countries like China, and no one really has "the answer." But I DO know from personal experience that his complaint about the media is definately true- it's kind of sad too. It's not so much that Microsoft is a major advertiser, but rather that the econ/financial divisions of most major media outlets have lately been unapologetic "rah-rah" guys for the stock market in general, and put far too much faith in it reflecting actual economic value. It's not a conspiracy, it's just that most of these reporters are heavily invested, both personally and financially, in the very markets they review, they see everything getting better and better, and get irritated with people trying to point out dangerous bubbles or potential instability. They also don't believe that rich people would EVER be duplictitious. Oh well, the future is a crap shoot- maybe they're right. (but hey- they're not :) )
On the other hand, the complaint about stock splits seems to me to be devoid of real validity.
The critical equation in dealing with portfolio valuation is:
The average split results in multiplying quantity by some factor; while we might quibble over the "strong form" of the Efficient Market Hypothesis, markets certainly appear to have been reasonably efficient at recognizing that when the number of shares gets multiplied that price needs to be correspondingly divided.Remember that the number of shares that are outstanding are an artificial construct; the number of shares issued is arbitrary.
If you're not part of the solution, you're part of the precipitate.
What about dear old Apple, with their "Desktop supercomputer" (at a screaming 450mhz, heh).
They've been resonsible for the odd bit of.. well, FUD.
Also, as much as I hate to say it, some of the more linux advopuppies have, too, on occasions. This is a shame, since it just erodes the credibility of those honest folks who have something valid to say.
Let's not sink to their level, eh?
If investors believe Microsoft is loosing money fast, they'll pull out. Nobody'll want to be caught holding M/S stock, if it's just about to plummet.
On the other hand, if investors don't believe a word of this report, they'll keep their money in M/S stock, even if it's bleeding all over the floor.
In the financial world, perception is EVERYTHING, and Microsoft's fortunes in the last part of this year will hinge heavily on how they are perceived as doing. Nobody who matters in this really cares how they =are= doing - what they see is all.
It's a small world and it smells funny; I'd buy another if it wasn't for the money; Take back what I paid (SoM)
>That much is obvious, but isn't it also obvious
:)
>why this course of action would affect the price
>of each share, and specifically the shares that
>were owned before the dilution? I mean, assuming
>that people were assigning a value to these
>shares in terms of the value of future dividends >or earnings in some way.
I would expect it to be included, yes. I'd expect the information to be reflected in the market price (it only takes one person with significant assets recognizing the pricing error to correct it).
>1.If Microsoft does not (or cannot) buy back the
>option shares, they dilute the stock, and this
>has a material effect on existing stockholders.
Yes, certainly. But the effect shrinks the earnings per shareholder; it can never make them negative.
>2.If Microsoft does buy back the option shares,
>then the cash used to perform the buy back has to
>come from *somewhere*, and this also has
>material effect on existing stockholders.
It's the same amount of dilution as in 1. This way, though, the shares are for a smaller company than in 1. The company is giving up part of its assets to remove some of its owners, just like what happens when partner leave partnerships. It's a change in capital, not an expense as Parrish claims.
>And I think there have to be far more sensible
>ways to estimate the likely value of the option,
>or at least its possible effect on shareholders.
>One way would be to use the company's historical
>data: how much was an option of $X over the
>market price really worth in the past?
This one *can't* work. If this was an accurate predictor, it would also by definition predict the future share price. If that were true, people would borrow to buy the stock until the price today was smaller than that future price by only the interest rate. Since this hasn't happened, the predictor can't be reliable.
Now you make me take off the economist hat, and reach for my statistician's hat
>Another way would be to use "normative" data over
>a market sector: in the software services sector,
>what is the current value of an option of $X over
>the market price? The problems with those
>methods, however, are clear: the past history
>might not be relevant, or there may be no history
>at all
There are a variety of ways to do this, but they come down to weighted averages of the potential future gains, with zero value for all values with the stock below the exercise price. There's a lot of literature on this in both econ and finance. The problem comes from agreeing on the relative probabilities and finding the comparison stocks. Before using this, you'd need to be convinced that you have created a system *less* prone to manipulation than the current system--and that's going to be a very hard sell (who chooses?). And even with this, you're still talking about a rearrangement or redemption of capital, not a true loss. It still all comes down to dilution, and giving up capital to avoid the dilution.
None of this should be read as meaning that the undiluted earnings per share figure has any meaning. The inclusion of diluted earnings in a footnote is certainly a first step. But whatever the solution is, I don't think it involves treating the options as some type of expense rather than a capital issue; any such solution would be more misleading than the current version, where at least the true data exists.
On Monday slashdot.org posted my study regarding the significant financial fraud now occurring at the Microsoft Corporation. Since then I have received many thoughtful comments on how I might improve the quality of both the message delivery and the message itself. You have a fine community and I sincerely appreciate the feedback. I will post an update but for now try to address the three most common comments: 1) You have no hard facts. Do access the spreadsheet and review the numbers and assumptions. These are right off the SEC Edgar database 10K (annual) and 10Q (quarterly)reports. I will include a q and a that shows exactly how to recompute the tax deduction Microsoft is taking. Most top CPA's and money managers do not understand this and frankly I have often been asked how in the world I figured this whole thing out. My hope is that when you read the q and a you will be more qualified than them to speak on this issue, whether you are a programmer or a gardner. 2) You say "I" so much and sound egotistical and arrogant. The truth is that I am more support oriented and have no need to stroke my ego. A common comment I have received from those who have seen my report over the last year is an intense frustration at all the various media stories done off its contents yet no attribution. Top reporters say things like, keep it coming Bill, yet they never provide any credit. This credit is not wanted for my ego but rather to help others get to the source. As you all know, Microsoft is a master at distorting other peoples work. Some might use the word corrupting. Imagine also how I feel as an investment advisor, seeing teachers and many seniors sucked into the pyramid each week. 3) Edit more. Will do. 4) Personal insults. It is surprisingly easy to see the dishonest Microsoft advocates in the forums. They always start with a personal attack and then deviate into cryptic comments regarding "dillution." The viciousness is sad and I might suggest to slashdot.org that you eliminate all comments that insult others. Maintaining civility in the discussions could be a key thing distinguishing you from other internet based forums. 4) What do you know about Linux. While having a black and tan beer last night I was thinking about that name slashdot and it finally hit me. It's been more than 10 years since I used Unix, a Sun version which had some great features for file transfers, etc. I might an ideal person to help you elevate your effort. Some of you might consider trying to pull me into your group via a speaking opportunity at a convention, etc. This might provide an opportunity for me to provide some thoughts on the technology related matters in addition discussing my study and the implications and opportunities it poses for other technology firms. Your well thought criticism are very very much apprecaited. Thanks again and you might listen to the Jeff Rense interview for a little more background on the fraud issue at Microsoft, a link to which is available on my site. Sincerely, Bill Parish www.billparish.com
--
PanDuh!
What if General Motors was able to convince the United Autoworkers to accept half of their wages in the form of GM stock options? Now, the labor cost per $20,000 car might decrease from say, $10,000 to $5,000. GM profits would soar due to the dramatically-reduced labor costs and the GM stock price would presumably increase. Of course, the autoworkers would want to exercise their stock options. The total number of outstanding options would increase, however, because the enthusiastic UAW members would accept more stock options. Now, some years later, after stock splits and additional options issued, there are 5 billion GM shares and 800 million stock options. But the enthusiastic UAW line workers say 'we love stock options...give us more!' And they boo-hissed some old grump who complained about some stock pyramid thing. And they all lived happily ever after...
I disagree, mainly for the large amounts of cash involved.
... snip ... They have "nothing" of real value.
Interesting. You seem to be saying that the amount of cash involved is relevant to whether the action is legal/ethical/misleading. I don't think so, but everyone has a right to his point of view, of course...
M$ had basically lied, saying they are making 30-50% profit margins when they are not.
Er.. No. Microsoft has followed and is following legal, acceptable and very widespread accounting practices. You may question whether these accounting practices are helpful to make reasonable investment decisions, but it is a complaint targeted at FASB, not Microsoft. And I am yet to see anything that Microsoft does with regards to stock options that Intel, Cisco, Amazon, eBay, etc. etc. do not.
Everybody here knows that the only value that M$ has in on paper.
Funny, you seem to believe that information (such as source code, for example) has no value. Do only physical things have real value to you? A brick is large and heavy, it has value, while some source code, or, say, a good relationship with a supplier, is ephemeral and not valuable at all -- right?
By the way, if you belive all you wrote, go and short Microsoft stock. If you are correct, you will make a lot of money.
Kaa
Kaa
Kaa's Law: In any sufficiently large group of people most are idiots.
not windows. Please. I couldn't think of a scarier thing than markets and bank, etc. running on windows. I know that a market in Chicago just switched to NT...it was part of a MS marketing campaign. Yikes. Watch out.
Let's see now, if Microsoft stock evenutally ends up with a typical Price/Earnings multiple of say 20, that would mean per-share earnings of $5 per share at a share price of $100. With 5 billion shares outstanding and a global population of 4 billion, that would mean annual net profits of $25 billion or $6.25 for each and every man, woman and child on the face of the planet. Now THAT is a lot of computers. Nope, no stock inflation here!
Um, hello? Were you paying attention this time last year? If so you'd know that, yes Virginia, on the macro-scale they're rigged and how! Of course AG & co. care what happens to major financial sector players and I'm sure given the starring role of tech in the big run up, they care deeply about the fate of MS, too. Iomega ? no way! MS is in a different class altogether babe. They aren't just in a different category, they are the cornerstone thereof! If MS gets sold for reasons of "scandal" or a well-deserved judicial reaming, rest assured: "the end of the world as we know it" is at hand; it'll be raining fund-managers and brokers in Manhattan for 40 days and 40 nights. Personally I'm not looking forward to it.
This guy is a hoot. MS is a crook...hire me MS said this..hire me A friend of a friend told me this about MS...Hire me Sounds like this guy has been watching way too much X-Files "THE TRUTH IS OUT THERE" Unfortunately, so is our author.
If we value companies based on revenue, then IBM should be work at least 4 times microsoft (assuming MSFT makes $20b a year and IBM make $80b ). But that's not the case, MSFT is worth almost 3 times IBM. That's because they can claim much larger margins. Now an average developer in MSFT earns well below the market rate, but if you add in the options then they would be "earning" almost 10 times the market rate. You've got to factor in this option stuff if we want to discuss a companies true earnings.
The most interesting claim is the one about Microsoft generating only 36 percent of its cash from product sales. And then there are the 5 billion shares of Microsoft stock outstanding...And 800 million shares of employee stock options...Food for thought. Microsoft undoubtedly makes money every time they sell a license to someone. After they pay the packaging, shipping, duplicating, and other direct costs, the real question is how much are they also spending on programmers, hardware, customer support, media relations, office space, etc. for that license? We all assume that this is some small number based on Microsoft income statements. But if they are pyramiding a lot of these costs into shares of stock, maybe the number is not so small and Microsoft really IS losing money. Microsoft undoubtedly has a positive cash flow but so does your average stock or real estate pyramid scheme...until the end comes. Microsoft has never demonstrated that they are very good businessmen. MSN, Sidewalk, Expedia, Carpoint, etc. are apparently all big money losers.
Your argument is not strengthened by 'bookending' it with these baseless suppositions that the author has a personal agenda for his statements. In fact, it is greatly weakened by such tactics. This is referred to 'addressing the argument to the man' and is one of a number of common logical fallacies used in arguments that attempt to discredit the person whom you disagree with or credit yourself with higher authority. By trying to suggest that the author is motivated by something other than the truth, you attempt to lend more credence to your own, supposedly objective, determinations and cast doubt on his claims.
Hey, man, lighten up a bit, willya? Go smoke some good grass, or get laid, or do whatever makes you more relaxed. You may have not noticed, but the point of posting to Slashdot is entertainment, not dry and scholarly discussions of matters of great importance. If I were writing an academic paper, I would use different language and different arguments, but this is Slashdot. What's a post without a bit of flamage (that's ad hominem attacks to you)! And I think I was very polite -- I didn't call Bill Parish an asshole, a kook, a raving lunatic, a nazi and all other cute things that are the base of the Usenet and Slashdot lexicon. So, like, chill it, man.
Kaa
Kaa
Kaa's Law: In any sufficiently large group of people most are idiots.
Thank you for bringing this interesting article to my attention. You must be complete idiots to be running it as a story. This guy's entire theory is based on transferral of millions of $s debt to MSs poorly performing expedia unit. Surely there is financial hanky-panky going on! Call in the SEC! Then you actually bother to look at the numbers and see that the company's yearly revenues are actually about 100 times larger than the amount in question. Sure, there may be some creative accounting here, but it doesn't amount to much. I'm embarrassed even to be reading your site any more. The allegations of financial misdoings in this hit piece are wedged into a tiny paragraph in the middle,' surrounded by much grandiose language invoking images of the Great Crash and the S&L Crisis of the late 80s. Towards the end, the author presumes to discuss how to "fix" MS, for everyones benefit, telling the people at the SEC and in the Justice dept. that he obviously knows more than they because he saw this small hole in the balance sheets. There is no meat here.
Disclaimer: Although I am a Microsoft employee, my opinions should not be construed as those of my employer.
Except that the reasoning is frequently NOT "we have faith in ourselves, think our stock is undervalued, and by buying it back we are investing cash wisely".
The reasoning is more like "hmm, if we distribute the cash to the shareholders (larger dividend), they do well; if we invest it in some fashion (eg treasuries) the company does well; but if we buyback stock, my options stay valuable and I do well".
> Sure, the fact that its not beating down Microsoft
/. has gotten to the point
/. don't like microsoft, and it's fun to make shots at the "evil" corporate entity. As long as there are big corporations, there will always be someone whom sees them as "big evil suppressors of all my hopes and desires". /. happens to be a gathering place for one such type of person. The sooner you realize that if you don't like a site or it's content you shouldn't go there, the sooner you can get on with your "real" life.
> with its righteous opensource/linux bat, Roblimo and the
> gang won't offer and commentary or quips.
> Like I've said before,
> of where its not "News" at all, its biased, unobjective
> fodder for the linux zealot.
So, what the hell are you still doing here?! Most people at
Do I hate microsoft? No. Why? As long as they are around I have something to hate.
I disagree. If you actually check Microsoft's financial statements for the last three years, you'll see essentially the same footnotes stating that their option repurchase program is drastically underfunded, but claiming that they plan to accelerate it to catch up. Year after year, but they never do what they promise, and the repurchase program falls further behind each year.
How did you miss that?
Your point is true, but doesn't negate mine. I only said that Microsoft was better than the ones that issued treasury shares. Those are the ones who truly water their stock (legally) to pay off their options. It is true that MSFT has not fully funded their option program, but that appears to be part of the problem that MSFT is having with the SEC and complaints about managed earnings. MSFT is a long way from perfect, but they are not the worst of the lot, either.
if !(agree)
{
if strcmp(context, 'Pro-Open Source')
cout communismAccusation
else
if strcmp(context, 'Pro-Mac')
cout justAnArtistDontUnderstand
else
if strcmp(context, 'Pro-Amiga')
cout getOutOfTheDarkAges
else
if goodDay
cout idiot
else
cout asshole
_________________
Is is just me or are the micorsoft employees err... I mean AC's being unsually active today???
Myddrin
First, don't sweat it. I too have spent a lifetime on terminals and all of this html is confusing. And no comments from you whippersnappers out there or I will submit every post throught a TeX filter!
That article was exactly what I was thinking about when I saw this. As an accounting geek who fell into UNIX by accident, I tend to see this without the veneer of "possibilities" that techno-fetishism lends to otherwise rational examination of a company's long-term prospects. I tend to invest for the long term and have done OK, generally beating the market the last few years by very little, but having done much better from 1985 on. I am sure that I missed some great stocks (Iomega, for instance) but I have also done without the ulcers (Iomega, for instance). I have been worried about Microsoft for years, and so has every responsible accountant and investor that I know. Up to the early '90s, it still seemed to be doing well, making profits the old fashioned way (apologies to SB), by making stuff and selling it. That stopped in mid-1996, when it became clear to everyone that their business model (one that depended upon upgrades) had broken with Windows 95. That was when I started selling, and so did a number of people I know who were managing some large funds. They (and I) suffered criticism for our decisions. I think that we were premature (but who could have seen this boom coming?), but fundamentally correct. Windows NT, in the final estimation, may not have made Microsoft any money, and their frantic diversification of the last year or so seems to be much less a result of concern about the DOJ than of the hopelessness of the situation penetrating the executive offices, and their attempts to turn the stock into cash, other stock, and so on.
When they go down, it will be messy, because a lot of the damage will be (as this article points out) really widespread. The miracle of mutual funds, which have brought big board investing to the average American, have also hurt the percieved need for a solid counselor, good fund managers (of course, over the last few year index funds would have done fine, so that has had something to do with it). and careful picks as people depend on increasingly overworked managers to pick the winners and give them so much money that they have to buy everything in sight to keep taking more of it. This has led to really silly diversification, as funds get a little bit of everything, thus making everyone vulnerable to a spot market correction (like the gods of accounting smiting Microsoft). Yes, a lot of that is the "interconnected economy" that everyone keeps harping about, but the laziness of fund managers over the last ten years will result in a disproportionate effect on other companies when the share price of Microsoft tanks.
Doesn't anyone remember the major corrections that occurred then the FASB decided that companies had to look at pensions as unfunded liablitities?
The issue with funky accounting is going to (re)surface and it WILL catch up with Microsoft sooner or later (probably sooner). Just like you cannot bullshit electrons, you cannot bullshit dollars -- sooner or later you have to show where it all is, and if the numbers don't add up, you have problems, and accounting "tricks" (which are actually just tools to deal with reality and are actually pretty highly evolved in both concept and execution, contrary to what most of these posters seem to think) have to be anchored in reality. This will not go away and it cannot be pushed into the future too much more simply because of concrete issues like vesting dates and Microsoft employees having kids and wanting to cash out. It will come back. So will the issue of derivatives in the larger context of risk management with a company's capitalization. So will the issue of deferred compensation as an unfunded liability (which has barely been addressed).
I am not confident that there will be much warning here at all, but I suspect that the markert will look at the truth with disbelief for a while, so that should give investors who are paying attention time to sell. I hope.
In theory, you are right. The problem is that in practice stocks, particularly tech stocks, almost always experience a surge in value around a split. The basic effect seems to be that people _dont_ do the math, and instead often buy based on 'market perception' and comfort zone - ie 'other techs are at 50, so microsoft should be at least 75'.
This guy seems to really hate Microsoft...
Odd, the article I read re-iterated several times that the author was a great admirer of the people who work at Microsoft, from engineers to officers.
snipping the actual relevant portion
This is a good rebuttal. Not sure how valid it is, not really grasping the economics involved, but it attends to the facts.
I suspect that Bill Parish at some point in the past shorted Microsoft stock (or didn't buy it,
buying instead something else) and is now very very bitter about it...
And here you do it again.
Your argument is not strengthened by 'bookending' it with these baseless suppositions that the author has a personal agenda for his statements. In fact, it is greatly weakened by such tactics. This is referred to 'addressing the argument to the man' and is one of a number of common logical fallacies used in arguments that attempt to discredit the person whom you disagree with or credit yourself with higher authority. By trying to suggest that the author is motivated by something other than the truth, you attempt to lend more credence to your own, supposedly objective, determinations and cast doubt on his claims.
To people like myself, who recognize such tactics, it has the opposite effect. Without a clear knowledge of the subject matter, I am less likely to believe your claims, due to your attempt to manipulate me into believing your are more honest than your opponent.
In the future, I would avoid such attempts.
Eric Christian Berg
>This isn't baseball, you don't have to worry about things like point-shaving... if companies selling their own derivatives bothers you, don't buy them -- no company in their right mind would "take a dive" to make money off their own derivatives
I'm not sure I agree with this. Companies don't have minds, right or otherwise. Officers of companies have minds, and it's not hard to imagine unscrupulous officers manipulating stock prices in ways that benefit them but not their stockholders. It's not even hard to imagine them getting away with it; corporate officers have gotten away with worse things quite a few times.
Slashdot - News for Herds. Stuff that Splatters.
Conspiracy theorists are, of course, free to conclude that putting MS on the DJ was a move to interfere with the DoJ case, since any hard hit on the price of MS stocks will have a very visible effect on the DJ average, after which the defense will cry "Our society can't afford a negative judgement!"
Damn straight! I don't know who is technically in charge of such decisions, but anybody who doesn't believe Microsoft was leaning on the decision as hard as they could... well, believing that MS is oblivious of this sort of thing, unwilling to use it as a weapon, or concerned with the larger issue of society and the markets as a whole, is not 'sensible' or 'levelheaded', but just 'stupid'.
OF COURSE that's the idea behind it. MS is now (if I am not mistaken, and I might be) on EVERY major index. Their collapse would _slam_ the economy of the entire world. That's just obvious- where has it become a conspiracy theory to suggest that MS has a stranglehold on the entire US economy, an argument which they themselves have darkly hinted at in their court cases? It's a no-brainer. It would be really stupid to believe this would have no effect on the independence of the markets.
Now, when you start asking if this is a _good_ thing, then you can get into arguments. Personally, I think it's extortion- I don't think it is a good thing to hand over control of the economy to a vapor business. MS is that business, and I think it's a particularly bad move to try and have them represented in every index and tie their influence to every nook and corner of the stock market. I'm not even a big fan of the stock market- seems not very productive to me- but even so, this is just not fair. For people who do want to play investor and try to make money just by figuring out who's winning and losing (without actually doing any real work or producing anything), it's absolutely necessary for those people to have somewhere to jump if, say, MS tanks. Which will happen, even the Roman Empire fell- and if MS is ubitiquous, that means that in the peculiar world of the stock market, everybody loses and there is nowhere to turn. If they were just representing the NASDAQ and left the Dow alone, people could dump NASDAQ and jump to the Dow and the economy would rock violently without necessarily collapsing. If MS becomes synonymous with the economy- well, we're already looking at Great Depression-like social statistics for certain age groups, and have been for years. The 80s were a major era for dumping money into retirement funds and making yuppies wealthy while the lower classes got basically hosed. That never changed, and to this day, your average American is hardly in a position to play investor- this whole stock market brouhaha is the toy of the upper class, and the division continues to widen. The lower class (economically) doesn't _have_ money to put into the equation anymore.
Well, when the upper economic class is hit, there _is_ no more. _That_ is why those speculating yuppies should be protected, _that_ is why MS's creative accounting and bubble economics must be curtailed. It's like that trickle-down stuff only in a darker twisted form- rather than providing a bounty of wonderfullness for everybody, currently the rich are the only means of _subsistence_ for the poor. Not opportunity, mere survival. It's inequitable, but if you simply hit the rich with, say, a stock market collapse, they will simply tighten their belts, take some losses, and then the economy will really start to _hurt_.
Personally, I figure that almost anything is better than that.
Yawn. Whatever...
How delightful to see that Slashdot readers dislike FUD, no matter who the target. This guys argument consists of dubious conclusions supported by little evidence. Microsoft is a pyramid scheme alright. Like the whole tech economy. While it is true that Microsoft is getting slapped for moving numbers around to smooth earnings, that has been well reported and is not the end of the world. I am very pleased at the comments that have been posted today. As far as I am concerned, anyone who attempts to dismiss the Slashdot readership as a rabid bunch of Linux zelots should be pointed towards this article and our response.
Er.. No. Microsoft has followed and is following legal, acceptable and very widespread accounting practices. You may question whether these accounting practices are helpful to make reasonable investment decisions, but it is a complaint targeted at FASB, not Microsoft.
So it's legal and ethical to report that you earned 2.5 billion when the actually value of the company decreased by the same amount in 3 months?
That's why it matters how much money they are doing it with. Lying about having $100 is a lot different than lying about $10 billion, especially when people are relying on that $10 billion to feed and house them after they retire.
Funny, you seem to believe that information (such as source code, for example) has no value.
The source code has value to Microsoft only because they can control its distrubution. They use legal, not logical or natural means to do so.
This is a shaky proposition. It turns out their "profits" are built upon the same shaky ground.
Do only physical things have real value to you?
Personal attacks in logical discussions are flames, and are ignored.
+&x
Could you be more explicit here? I'm interested but I don't follow your point 'cause "the restriction" (nature, degree) is unknown to me.
Gee, and that just makes me look oh so intelligent! I the pipes are missing,
and the indenting didn't come through....
sorry!
Myddrin
Whatever about the truth of his allegations, he comes across as a complete nutter. My favourite
quote:
"It was the look of fear in the presenter's eyes
during a break when I showed her a graph of Microsoft based upon my analysis."
K.
-
-- Proud descendant of semi-nomadic cattle-herders.
Er.. No. Microsoft has followed and is following legal, acceptable and very widespread accounting practices. You may question whether these accounting practices are helpful to make reasonable investment decisions, but it is a complaint targeted at FASB, not Microsoft.
So it's legal and ethical to report that you earned 2.5 billion when the actually value of the company decreased by the same amount in 3 months?
That's why it matters how much money they are doing it with. Lying about having $100 is a lot different than lying about $10 billion, especially when people are relying on that $10 billion to feed and house them after they retire.
Funny, you seem to believe that information (such as source code, for example) has no value.
The source code has value to Microsoft only because they can control its distrubution. They use legal, not logical or natural means to do so.
This is a shaky proposition. It turns out their "profits" are built upon the same shaky ground.
Do only physical things have real value to you?
Personal attacks in logical discussions are flames, and are ignored.
+&x
Warning: I Am Not An Accountant. (Or a lawyer, for that matter. Please don't sue me.) But if you scroll way, way down, you'll find:
And then they cite pro forma numbers last year of $1.29 vs. $1.42. Which is a significant difference, but not (I suspect) going to send investors fleeing for the hills. Can one of you dandy accountants--looking at these lawyer-ese, my respect for you guys just increased drastically--explain the Black-Scholes valuation model?
--
I didn't know what a meme was, so I asked five friends. They didn't know what a meme was, so they asked five friends.
Are you sure that you are an accounting proffessor? You seem to be equating the change in the market value of Microsoft with the change in the value of Microsoft assets. These are not the same thing. Microsoft does not own their stock. It is owned by shareholders. Microsoft assets are those things they DO own such as their software, real estate assets, trademarks, etc.
I wonder if he used MS Excel's Chart Wizard to do it.
Just a second ago there were 85 comments here! ZAP they're gone. Pretty eerie!
So it's legal and ethical to report that you earned 2.5 billion when the actually value of the company decreased by the same amount in 3 months?
It's legal, for sure. Do you think DoJ would have missed that obvious a thing? And value of the company is one thing we are arguing about, are we not? "Value" is a very vague term and people can and do play all kind of games around it.
Lying about having $100 is a lot different than lying about $10 billion
Maybe to you, not to me.
The source code has value to Microsoft only because they can control its distrubution.
I don't understand. That the whole idea of intellectual property -- that you have some control over distribution, no?
They use legal, not logical or natural means to do so.
What, pray tell, are "logical" or "natural" means? Besides, what's wrong with legal means?
Do only physical things have real value to you?
Personal attacks in logical discussions are flames, and are ignored.
Heh. That wasn't a personal attack. If it were, you would be in no doubt about it. I was just commenting on your strange observation that Microsoft has to valuable assets. It is still a very strange observation to me.
Kaa
Kaa
Kaa's Law: In any sufficiently large group of people most are idiots.
From glancing at his report it seems he is talking about Employee option expense. This isn't a new issue with Microsoft or for that matter MANY tech stocks. I think a bigger issue with many of these companies is what happens if thier stock price stays flat. Will employees stay put if the stock options turn out to be worthless? Will they start asking for higher cash payments?
In the Keynesian long run, the market must go to zero.
For his sake, let us hope that his financial analysis is better than his tech analysis.
What advice would you offer supporters of Linux? Go easy on Microsoft's employees.
Most criticism I have read of Microsoft usually say the employees are very smart people. The problem is elsewhere (marketing, etc.)
They have pride too and are very insulated from what is occurring. Regarding a product strategy, I would focus on providing what Windows has never done well, for example file compression, backups and directory management.
How preciously naive. I've never heard these brought up as the shortcomings of Windows before. There's that doublespace program nobody needs to use anymore since huge drives are so cheap, and programs like WinZip are pretty easy to use for people who feel the need to compress files. (Not many average users, I would guess.) I think when he says directory management he's talking about moving files around. If so, most people seem to find Windows Explorer does the trick pretty easily.
Rather than use software testers, I would test with teachers and nurses and focus on the front end.
They do usability testing all the time.
The big lesson regarding Unix was that too little attention was paid to the front-end. Most users are overwhelmed with managing information and want simplified direct access to the Internet, a few basic applications and a way to store things.
Thanks for the advice. I never knew that.
You may laugh at my website and think it unprofessional yet that kid with a slow line in Chile can access easily access the information as can people in South Africa and other countries because it is not bandwidth intensive nor burdoned by ridiculous Frontpage files and extensions.
No, I think it's unprofessional because of your spelling. Sites that load fast are good.
Intel will of course be critical to Linux.
Of course. That is why they are putting so much support behind porting Linux to Merced (I mean Itanium).
Anything that can be imbedded as native Linux code on a processor will do wonders for proliferating Linux.
Embedded. Also, that sentence is technobabble. I think I know what you're trying to say though, you just don't know how to state it.
That seems to have been the lesson of NSP which Intel was forced to remove due to objections from Microsoft. Encryption, compression and storage services based directory simplifications, i.e. drive designations, etc. would seem ideal.
I have no idea what you are talking about in either sentence. Thanks for the advice!
"downward momentum"? Yeah, like a safe falling off of the top of a skyscraper has "downward momentum."
The problem is less that Microsoft is about to have its last reliable revenue stream cut off (intalled copies of Office and various OSen) than that it has already been really restricted (as of 1996 or so) and Microsoft has been hiding it. When the market figures out that it has been fooled -- watch out!
"The Market" you see is made up of people. Like many important parts of life, it is composed of people who believe other people and base their decisions solely on the opinions of those other people -- saying that it depends on "personal realtionships" is not really accurate anymore, but it is close. How do people get listened to? By being righta lot. That makes people assume that they are right for reasons other than dumb luck. When "the market" in the form of a whole lot of people that have assumed that things are operating properly realizes that the people who should have been paying attention vis a vi Microsoft have been asleep at the switch, the shock waves will permanently destroy a lot of careers and make all the important people (most of whom will have lost a lot of money) make sure that this won't happen again. Watch for Greenspan to suddenly make a 180 and decide that damned near everything needs to be disclosed, including "intent." And whether or not Microsoft turns everything around and takes major charges and restates earnings back ten years, they will still be off of the buy lists of any fund that likes to seel things like "stability". And billg may find that investors baying for blood are a lot harder to stop when they all go to the same country clubs with the entire Federal judiciary. It is not the small investors who will be loosing nine figure sumes, after all. And although Nick Leeson seems to have redefines the degree to which one can fuck up and still not be killed, he went to jail.
Wait and see. And look at the "real blue chips."
People that choose to be this ignorant have no place investing in the stock market.
They should buy:
- Long term government bonds, or
- Index funds
both of which are more suited to the action of those that wish to remain blithering idiots.If you're not part of the solution, you're part of the precipitate.
Many things that are legal are not in the overall interest of the citizens of the US, although they may be in the interests of some fraction of the citizens.
Most of the accounting before the crash of 1929 was legal. Most of what went on at S&Ls was legal. The shady accounting that sustained conglomerations in the '60s was legal. Part of the article's point is that these legal accounting tactics have REAL consequences down the road, that will hurt lots of people, and that they should therefore be made illegal.
This is hardly unprecedented---for example, in the wake of the chaos after the 60s---a decade financially just like the 90s, with an unsustainable stockmarket driven by techs---crashed, accounting practices for conglomerates wer changed. Everyone posting here who is convinced the current market will keep going up forever would do well to read some of the books written at the end of the 60s---we have exactly the same sense of optimism that technology has changed the laws of economics, that the complaints people are making about shady accounting and unstainabled P/Es are just sour grapes and so on.
And of course the end result of the 60s was the 70s, not a wealthy decade. (Sure there was an external factor, the oil price hike, but that would not have been so devastating if the economy hadn't been in such bad shape.)
The reason these options are so valuable is because the assets are growing in value.
I'm just trying to say that one should apply the same accounting rules for liabilities and assets.
Analysts adjust the accounting numbers all the time. However, if the analyst is going to adjust the liabilities because the assets are more valuable then he should adjust the value of the assets in the same way. The revenue and expense fall out of how you record the change in the value of the assets and liabilites.
Microsoft's accounting is not very good, but at least they don't use mark to market accounting for one side of the balance sheet and not the other.
PS I'm pretty sure I'm an accounting professor.
Employee wages for R&D are tax deductable. It is done in the large corp I work for.
Yes, but only if it's actually R&D ... Research and Development. Keep in mind that in a traditional company, research and development is a very small part of bringing a product to market. If I'm building widgets, R&D is what I spend to determine (1) if widgets can be built at all, and (2) how to build a widget. The bulk of my costs in producing widgets will be in purchasing the machines and raw materiels necessary to produce widgets and in paying the wages of the employees that produce the widgets.
The reason for that tax deduction was to encourage businesses to develop new products without worrying (too much) about spending money on research and development that doesn't pan out.
Now contrast that with software companies, where the development step (ie: implementing the program) is really the production step, because media production (floppies and CDs and manuals) is such a small part of the overall cost. In this case, by the existing rules, software companies are being given tax deductions for all of their actual production costs. That's a hell of a deal for Microsoft, but not exactly what the IRS intended.
For what it's worth, the IRS is beginning to crack down on this sort of abuse. Who knows if it will do any good...We call it art because we have names for the things we understand.
I don't think Greenspan has much power over disclosure, that is the balliwick of the SEC and the FASB.
--
"L'IT c'est moi!"
Yeah, like those nuts at the SEC!
...
:) then
> Lack of firm evidence to support his position. I
> tried to read the spreadsheet, but my copy of
> Excel would not open it. Nothing else in the
> article gives me any confidence in his position.
...
If your Excel refuses to open his spread sheet
(isn't that enough proof of conspiracy?
you may use StarOffice" to open it. Works fine.
I concur. He doesn't sound nearly as loony as say *lexander *b*in or T*d(die) H*ld*n (say their names to loud and they appear.)
But to be fair, we havent' been able to
read very much of his work (5pgs or more).
Mr. Velikovsky (sp? the catastrophist) could
appear coherent and logical for several pages at a time, seemingly without effort....
I think the only fair way to get an assesment of him and his ideas is an interview with him and
on other randomly picked analyst. So we can compare him to someone else of his ilk.
Personally, I don't know about this guy. I know I am a little annoyed with all these ac's posting and claiming saying over and over and over and over again that this guy is a crank with little
or no proof.... It makes me think of alt.religion.scientology....
Myddrin
I have heard arguments like this before. the gist of them is generally that, due to outstanding debt in the form of unvested or vested but not yet cashed stock options (which are not kept on the books), Microsoft is actually losing money. Or, at least, does not have the valuation they would otherwise claim.
Of course these amounts really are kept on the books, they just get fiddled with before they end up as a footnote to the balance sheet. In accordance with law and prevailing accounting methods mind you (doesn't mean it is honest though). So I don't think I would personally go so far as to term it 'fraud' or a 'pyramid scheme' as the author of this piece has done. But he goes farther yet -- claiming that this could result in a complete collapse of the financial markets if it is not dealt with...
The weird thing is, Bill Parish appears to have some credibility on the surface. He mentions talking to the SEC Chairman, Arthur Levitt, and providing information on this to several fund managers. The article itself is well written and cogent.
Intersting notes -- One of the author's suggested 'fixes' is to "Prohibit Microsoft from buying back its own stock, instituting stock splits or selling put contracts and engaging in other hedging activity for 10 years. These are tricks used to manipulate the stock price and have contributed greatly to building the financial pyramid. It might make sense to outlaw this practice all together."
This is unlikely to happen, being as these activities are common among nearly all publicly held companies. But then he goes on to suggest that someone should "Prohibit Microsoft from offering employee stock options or any employee based ownership program for 10 years. The truth is most people go to Microsoft for stock options."
Huh! ***OUTLAW STOCK OPTIONS?*** Even as a one-time thing this would be a precedent that could destroy the high-tech economy we have grown in the last few years!
Of course another author suggested remedy is to "Request to have me as a guest on your talk show, radio station or other media outlet or speak at your convention. You might also send my Web site link to friends and people of influence such as other business leaders, political leaders and journalists, both here in the U.S. and abroad."
I sense several levels of hidden agendas here. Especially considering the harsh tone of the second half of the article. He even accuses Microsoft of 'Money Laundering' in Brazil and 'Corrupting Higher Education'. Such claims tend to marginalize his other arguments by making the Mr. Parish seem looney and fixated in his hatred of Microsoft. This is sad, because there more than a little merit here.
Jack
- -
Are you an SF Fan? Are you a Tru-Fan?
The source code has value to Microsoft only because they can control its distrubution. They use legal, not logical or natural means to do so. This is a shaky proposition. It turns out their "profits" are built upon the same shaky ground.
In making this argument, you are implicitly claiming that there is some underlying substance called "value" which is inherent in an object, and cannot be created or destroyed; some immutable, objectively measurable quantity which software does not posess, which is inherent only in "real" things. This notion is, quite simply, false. The only reality that the notion of "value" has is how much people will pay. If I will pay $50 for Windows 98, that means that, to me, Windows 98 has a value of at least $50 compared to not having it. Value "on paper" is just as real as any other kind of value. Value == what people will pay, no more, no less.
And, by your argument, all value is on paper anyway. You claim that there is something shaky about MS's ownership of their software. This is not the case. Nobody with any real knowledge of the law seriously argues that, under current law, Microsoft does not own their source and their binaries, and hold the exclusive right to sell them. Barring a change in the law, their control of their software is rock-solid. And do you really think, considering how much money is at stake, that congress would ever even think about repealing intellectual property rights? Microsoft's profits in terms of software sales are shaky only in a highly theoretical sense. So, to put it most precisely, when you buy Windows 98, you are buying A. the physical media and the convenience of not having to track down a Warez site to get it from, B. the documentation in useful, printed form, C. the right to not get sued or prosecuted for using the software, and D. the ethical peace of mind corresponding to C, if that sort of thing bothers you. Most of the value in this transaction comes from C and D.
Moreover, the same principles apply to what you call "logical and natural" exchanges. Ford's ability to sell cars only exists on paper; it is perfectly possible for me to simply steal one and save myself the money. Ford uses legal, not logical or natural means to prevent this. To use another of your arguments, those cars only have value to Ford because they can control their distribution. The fact is that, if you do not count the law as logical or natural, the only logical or natural exchange that can take place is of the form "Give me that, or I will bash your skull in." Everything else is built on the structure which law and order provide, and that makes the law a very real, as well as a very logical and natural, system.
"Never let your sense of morals prevent you from doing what is right" -Salvor Hardin
Sound's to me like you're an arrogant fuck that cares more for a painting because of who the artist is than the the quality of the painting itself.
While it has been proposed to change accounting procedures so that these real expenses are accounted for, what may be needed instead is to force investors to make investments for the long term (high taxation of short-term investments would be one approach). I think investment professionals would be a bit more cautious about Microsoft if they had to make a firm commitment even just for a year or two.
Of course, it's not going to happen. To me, it looks like Microsoft (and many other companies) are continuing to do the equivalent of printing money and creating inflation that is accounted for nowhere. I don't see much real value that corresponds to the paper value that is represented by their stock. At some point, there is a good chance that it will all collapse, and I suppose then we will get reforms.
"Microsoft, the world's most valuable company, declared a profit of $4.5 billion in 1998; when the cost of options awarded that year, plus the change in the value of outstanding options, is deducted, the firm made a loss of $18 billion. "
Don't you have anything better to do with your time than try to find ways to tattle on people/groups/percieved antagonists?
I mean really, how many notifications a week do you normally make to the SEC?
Oh well, I guess everyone needs a hobby - if you don't keep the stock market safe, who will?
Its hard to manuplate the Dow based on the choice of firms you put in. The Dow is calculated by adding the prices of 30 stocks and dividing by a 'divisor.' The divisor would be 30 (because there are 30 stocks) but they adjust it to make sure the average doesn't change from day to day due to stock splits and changes in the Dow makup.
The firms don't change very often. There have only been about 48 differnent firms in the Dow since 1928. Some of the firms left because they went bankrupt (John's Manville) and some just became irrelevant (Woolworths). Everyone is warned before the stocks change and the change doens't retroactively effect the average.
Stifle, Edith!
To believe the authors findings, you have to believe that all financial markets are essentially rigged through simply supply and demand. There is no doubt that the price of Micro$oft stock is driven in no small way through the demand for its shares. Mutual companies and 401K plans etc. do contribute to this continued upward pressure on the stock price. I call this DEMAND. Many stocks move without regard to the underlying financial situation in which the company finds itself. Amazon may not be the best example of this but some of the other internet startups with far less revenue and even shakier business models are prime examples.
;-)
Witness the drastic pullback in stock prices for companies that fail to meet the hype and things reverse. Any IOMEGA stockholders out there. Take a look at a 3 year stock chart and watch the stock go from 1/4 up to 30 and back down to 3 as the bubble burst. Combined with close attention and regulation from the SEC, stock markets regulate themselves. Our markets and the controls on income reporting and accuracy are the envy of the world. Check out income reporting in some emerging markets to get a feel for how bad it can be. Sorry folks this guy is a nut.
Dave
NOT a Microsoft shareholder or employee unless mutual funds count
I think everybody not in the Raving Loony Party aggrees with this. :-)
That much is obvious, but isn't it also obvious why this course of action would affect the price of each share, and specifically the shares that were owned before the dilution? I mean, assuming that people were assigning a value to these shares in terms of the value of future dividends or earnings in some way.
Again, it's clear that, as you say, there is no "debt" here (assuming that Microsoft the firm is legally organized in such a way that it can just print up new shares for this purpose).
But I think the root of the problem is this: Microsoft is not obligated to buy back these shares, only to sell shares to employees for the option's exercise price. And this creates a dilemna:
Now, the only problem is where and how to communicate to the stockholders what effect the exercise of stock options will have on the per-share earnings of the stock holders. This is what the accounting standards people are fighting about right now.
I don't think that's right; everybody knows that an option to buy at $12 won't be exercised if the price is only $10, so the options would show up either as a Zero or a liability. And I think there have to be far more sensible ways to estimate the likely value of the option, or at least its possible effect on shareholders. One way would be to use the company's historical data: how much was an option of $X over the market price really worth in the past? Another way would be to use "normative" data over a market sector: in the software services sector, what is the current value of an option of $X over the market price? The problems with those methods, however, are clear: the past history might not be relevant, or there may be no history at all.
Would there be any potential to use the system developed to put a concrete pricetag on a bank's possible future loan losses (loan loss provisions) as a model for this kind of accounting?
There just has to be a better way than this.
Babar
Microsoft Accused of Mis-using Cash Reserves "A lawsuit quietly settled late last year alleges that Microsoft's immense cash reserves were used to manipulate its earnings reports, giving the company the appearance of steadily increasing profits and allowing it to consistently exceed Wall Street projections."
SEC Probes Microsoft Accounting "Federal authorities are investigating Microsoft Corp.'s, practice of setting aside some of its software revenues and recognizing them later, chief financial officer Greg Maffei said on today."
Commentary regarding FASB trying to get stock options factored into financial statements "While these represent true legal and accounting vulnerabilities to Microsoft, the company's future is so strong that the long-term picture remains strong."
We want endless gardens of data, where the bits can flower, flourish and reproduce. -- Andy Mueller-Maguhn
Singling out Microsoft is not really fair, but it does show that everybody else will have to "join" this game, or their stock prices will suffer - at least until sanity prevails in the market. Basically investors (fund managers etc.) are all delusional. Consider this: the valuation of Microsoft is based on the expectation for future earnings. That's fair enough. Now consider that the combined net worth of Microsoft's employees each year increases by an amount greater than Microsoft's reported corporate income (assuming the reported income is correct, and only networth changes from Microsoft stock and options are included). This has happened every single year since the IPO of Microsoft! There is no reason to beleive that it won't continue in the future. Since Microsoft has never paid a dividend, and probably never will, it is a simple question to ask how the market values this future income as a positive number - when all of it (and more) will always go into the hands of the company's top officiers. Of course this is a confidence scheme that can only last for so long. When the music stops some people will be holding Microsoft shares, and others (Bill etc) will have the cash. It's a little hard to blame them, the real problem is with tax law, accounting standards, and investor greed.
Microsoft's accounting practices have been under scrutiny for a while now. Check for example this Seattle Times story from July 1st about an SEC probe into alleged artificial manipulation of quarterly results.
--
Xenu loves you!
I'd say his point is not that ALL media are suppressing this, but that the media targetting "commoners" are, which gets back to his central point---that he is concerned about how this will affect the pension of the little guy. For example, _The Economist_ certainly covers this, but, while I subscribe to _The Economist_ most people don't. The question is, is this covered on CNN or CNBC or USA Today?
Somehow this reminds me of the guy that claimed that he could get a lot more ip addresses out of the current IPv4. He showed a lot of figures, mathmatics, and poor writing skills. This article seems to be the same. "Microsoft is bad because it has too much money, sell your stock now"
WTF??? Article doesn't show any facts or show proof of facts, just makes assertions and tries to show it's valid by associating itself with prominent figures.. No Dice.
Lando
/* TODO: Spawn child process, interest child in technology, have child write a new sig */
The report does indeed seem to include a lot of speculation, and I have not been able to verify all of the facts. Regardless, the types of things that are alleged are done by many companies, for various, often less-than-ethical reasons.
The bottom line is usually 'what goes around comes around'. -IF- MS is really crossing the line with regards to how they cook the books, it will catch up with them.
'Creative accounting' is used by most major corporations, Billy G didn't invent it.
Lying about having $100 is a lot different than lying about $10 billion
Maybe to you, not to me.
Since you bit.. Stealing $100=Stealing from 1 person roughly a weeks worth of living expenses is much different than stealing $10,000,000,000 roughly 1,923,076 YEARS worth of food. Those are not the same.
They use legal, not logical or natural means to do so.
>What, pray tell, are "logical" or "natural" means? Besides, what's wrong with legal means?
The only reason M$ is worth money is because it is illegal for me to make copies of their software. I don't believe in the purity of the U.S. legal system. If you believe it is infallible, then we have a different argument. Because of our current setup software is valuable only if it can be made scarce, unnatural since it's reproduction cost is very near zero.
Under a more "natural" setup the value of software would be determined by it widespread distrubution and overall utility (support), rather than some legally forced "unnatural" scarcity. Under such a setup the value of said software would be substantially reduced but easier to support economically without the need for questionable accounting. This is a different notion for determining the value of software, but you asked, so..:)
I was just commenting on your strange observation that Microsoft has [n]o valuable assets.
They are currently valuable but on an unstable foundation. Much of that value is tied up in employees (paying their own salaries from future stock earnings) which can leave the company and take their own "intellectual property" with them.
+&x
Actually the Dow is affected by more than 1 for each dollar a component falls. The dow would fall by $75/0.2. The divisor is .2 rather than 30 because of all the stock splits since 1928.
The Higher they go, the harder they'll fall.
Inflate, Inflate!!
Of course, this is completely dependent on the claims of the above article...
No, Government allocation is just as lousy, not to mention chock full of moral hazards. Yes, the stock market basically does decide where society invests it's captial. The reason you can justify the supposedly overvalued tech stocks is, of course, that people think they'll pay off BIG time in the future. We, via bank loans and direct investment, are supporting these companies almost entirely out of thin air. This is a CHOICE that society has made, and it could have put it's money into other things. Not deliberate choice, but rather herd-like. I don't like the idea of anyone being in control either, but the market incentives in stock markets are too screwed up for free market magic to work correctly. Let's say it's 1800. I stand up and say that I'm going to start an internet company- there may not be an internet yet, or electricity, but I'm just starting early. Should you invest in me? I mean I WILL make huge amounts of money SOMETIME in the future, but is it really a great use of societies' productive resources to support me for 200 years? No. The same thing to a much smaller extent is happening here. There are alternatives, such as democraticaly invested, non-inheritable shares. This would give everyone an equal say in what the economy does, instead of these HUGE, untankable funds that we have to continually bail out with our tax money.
Re:Even if their stock went to 0 tomorrow... ...that's still only, what, 75 or so points off the Dow?
.49. So the index would drop by much more than 75 points. Even given the rough assumption that MS has about an average stock price, the Dow would drop by 1/30th, or about 3%. That is a huge drop, given that the purpose of having such a broad average is to see market trends and not be unduly affected by the troubles or success of any company.
Actually, it's calculated by adding up the stocks and then dividing by a factor of approximately
Not the kind of thing that Slashdot should be publishing. Especially with an IPO pending. It sounds like Slashdot is trying to influence MS's stock price. I think the SEC should see this. I may have to send them a little note.
If Microsofts stock went to 0 tomorrow, that'd have a lot more ramification than 75 points off the DOW. It would quite literally crush the entire tech industry. Monopoly or not, they're the biggest player in the markets today. If they sink, so do we...
There is general problem with how companies have to account for stock options given to employees. If it was done as a normal person would expect you would see a lot of high tech companies in the red.
And yet, people still think that stock markets are a great way for society to decide how to invest it's time and resources. It's not democratic, and it's very obviously not even pragmatic. So what is it? A casino in which the more money you have, the more likely you are to win. And now all these companies like AmeriTrade are trying to get smaller traders into the game? Sure- pour in your money! Pour in half of the Social Security funds! Anything to keep those meaningless values from tanking!
Last week, MS was added to the Dow Jones, the leading indicator of the stock market.
I know that these findings took time, and such, but I also see that this was written at the beginning of Oct, and that the info was also sent to the appropriate gov't finance offices. I wonder if those offices even saw them.
If MS stock were to deflate to it's normal value, I'd strongly worry about a deflation of stocks across the board, as the start of the pending 'diaster' that may hit the market. Of course, other stocks, such as Apple's, IBM, and so forth, which have much more tangible qualities, may be able to hold their own, and the IT bubble won't pop as badly.
One thing I did like was that MS tried to claim that everyone was overvaluing their stock, but Bill retorted that MS is a market leader, and thus should be setting the example, and not trying to succum to such tactics. Very good point here.
"Pinky, you've left the lens cap of your mind on again." - P&TB
"I can see my house from here!" - ST:
The most conservative old-style companies were unaffected. They already used the least profitable method.
The high tech firms were all affected to varying degrees. With a couple exceptions, the impact was in the 20-70% range for reduction of profit. Microsoft was the major exception, transforming from huge profits to large losses.
Mr. Parish is reacting far too excessively, but to a real problem.
In classical corporate regimes (circa 1960's - 1980's), the bulk of compensation and future value to the employee was salary & raises. In the 1990's, the common practice began to reverse this model, so that salary & raises were a small part of the overall compensation picture. It was MS came along and broke that model. They began offering the bulk of compensation as stock options (provided you keep them for a few years). Thus, it became in the best interest of MS to keep inflating the value of its stock through monopoly leverage in the OS market, through strategic acquisitions, and through carefully controlled holdbacks of cash to provide a smooth, upward curve of reported financial results. The problem here is that the old accounting rules do not apply to a company for which stock is not a small "perk" but rather the main engine of financial growth and the main source of wage equivalence. The accounting rules assume that stock options will always be a small portion of a company's overall debt load, which in Microsoft's case is just not so. Therefore, the rules should be adjusted to more accurately reflect the new regime in a stock-crazy marketplace. Visit http://www.os2hq.com/ for more "Warped Perspectives".
If you look at the same facts in different ways, you can often get quite differering views. Consider this hypothetical situation of an employee of a company Options Unlimited: whose options vest after one year.
1990: Employee A Joins and is granted 100 options at current prices of $10. Company buys back 100x$10 shares.
1991: Employee A is granted 100 options at current prices of $15. Company buys back 100x$15 shares. Employee also excercises 1990 options at $10
1992: Employee A excercises 1991 options at $15 (current value $25) and leaves company.
Article viewpoint
Look at the year 1991 - Company bought 100 shares at $15 and sold 100 shares to A at $10. Wow - look at that $500 loss!
Company cost viewpoint
Cost: (1990) 100 x $10, (1991) 100 x $15 buybacks = $2500
Received: (1991) 100 x $10, (1992) 100 x $15 exercised = $2500
Nett cost to company = $0
Employee benefit viewpoint
Cost: (1991) 100 x $10, (1992) 100 x $15 exercise = $2500
Recieved: (1991) 100 x $15, (1991) 100 x $25 = $4000
Nett gain to employee = $1500
balance sheet progression
Beginning 1992: Contains 100 x stock worth $25, cash $0 (total $2500)
End 1992: contains stock $0, cash $1500 (total $1500)
Change over year $1000. (which is the same as the employee made on options over the year.
Summary
Options, are just that, options, and accounting for them is difficult. How do you value the 100 shares that are earmarked for employee A? at strike price? at market price? If the employee exercises them, the balance sheet value will fall, so that might suggest the strike price. However, until the options are exercised, they are still owned by the company, so the market price would seem more accurate.
I think the point that is interesting is that options are currently in the balance sheet at market price, so there is potentially a unrealised decrease in the balance sheet bottom line. If, for example, the stock price started to fall or flatten, the following might happen:
A) A lot of people might start to exercise their vestible options, resulting in balance sheet decrease.
B) A flatter stock would result in people wanting higher salarys, as options aren't as attractive, resulting in higher costs, lower profits, lower stock price, and repeat.
IMO, any stock that has a lot of options must keep growing, or it has the potential to start the downward spiral shown above, and if that sprial really started, it would be damn near impossible to stop
--
Exigo spamos et dona ferentes
\begin{\economics professor}
His claim of fraud is, in itself, fraudulent (or incompetent).
His claims seem to come primarily from the notion that microsoft sees a cost when stock options are exercised.
Take a step back, and think about this.
1) the existence of large number of options understates the potential number of shares. This is true--if there are 100 shares and 200 stock options, 1 real share represents not 1%, but 1/3% of the company. Thus the earnings per share are overstated. This is what the "footnote" business is: the "diluted" earnings, spreading earnings out over potential shares rather than actual shares, only occur in footnotes. The result is indeed that earnings *per share* are lower than reported. It does *not* affect total earnings.
2) The "debt" from these. Here is where this turns into nonsense. Many companies, including microsoft, do indeed buy back the shares when employees excercise options, in order to keep the total number of shares outstanding stable. But they have *NO* obligation to do so. Microsoft could simply allow more shares to exist. Done. No cost to Microsoft.
So why doesn't microsoft do this? Again, step back a moment. *If* the number of shares increases, the price drops. If you triple the number of shares due to options, the price will fall to (roughly) one third of its previous level. By buying back the stock, each share claims a larger portion of microsoft, and is thus worth more. Investors prefer this, and thus corporations do it.
If we assume, though, that a corporation *will* buy back the stock, it may make some sense to include that future cost (after discounting) to the business in some way (there are a number of ways to do this). However, to do so, we have to estimate or know the future price of the stock. If we knew this with certainty, this would also be the current price (less the interest in the mean time). And the important thing about options is that they are issued at *more* than the current price. If the current price is ten, the corporation might issue options to buy at a price of twelve. This would show each option as an *asset* rather than a liability (which, of course, is also nonsense).
The fundamental failure here is that the options are not so much transactions between employees and ms, but between employees and the current shareholders--a chance to become shareholders. This doesn't actually affect ms at all; it's a question of who owns ms. [though there is an effect in the wages--owners can be paid a lower wage than non-owners, just like any other business].
Bottom line: profit or loss is revenue less costs. Changing who owns the additional shares does not change the total profit, but merely the number of people splitting it.
3) Let's grant the division by zero, and assume that he really can predict future share price. Deduct what employees pay to exercise the options from the future share price that ms pays to clear them, and we get the cost to microsoft (more accurately: the transfer among owners of the various assets).
Oops, there's the problem: as more of these shares issue, the price drops. If microsoft has options outstanding for twice as many shares as the current share base, the proper share price to consider now is the price that would occur *if* the shares were exercised. That is, the price that would occur if the employees *kept* the shares after exercising the options. The more shares on the market, the lower the price for buy-back. Even if you grant the economically dubious assumption that the market price can be manipulated for small amounts of options (change is close to zero for a small number of extras), you have to assume that not only every shareholder of ms is a complete idiot, but that every other potential investor in the world is as well. Yes, the footnotes may "fool" some ("it's only a 3% error" may fly) for small amounts of options, but to assume that the same happens when the employees hold huge portions is silly.
Bottom line: to make the costs add up to enough to create a loss instead of profit would require the share price to stay up in the face of massive actual dilution, which wouldn't happen. Microsoft would buy back the shares at much lower prices in face of the dilution.
While I'm at it: the list of folks that agree with him set's off my b.s. baffle . . .
But the most important line is:
>6) Request to have me as a guest on your talk
>show, radio station or other media outlet or
>speak at your convention.
There we go: make me rich and famous.
Bottom bottom line: the claims of "fraud" are primarily arguments with existing accounting practice, some of which use the equivalent of division by zero to reach their conclusions. The author has a lot to gain, however, should not be dismissed. By the "unorthodox" definition (to be charitabl) of fraud used here, the claims themselve are fradulent.
[Note: I'm not arguing that ms stock isn't a price bubble. I believe so, but not for the non-reasons in this article.]
Yeah, and watch out for all those unmarked black UN helicopters as well...
Microsoft, the world's most valuable company, declared a profit of $4.5 billion in 1998; when the cost of options awarded that year, plus the change in the value of outstanding options, is deducted, the firm made a loss of $18 billion.
Later, from the same article:
Some maintain that these numbers exaggerate the problem: there is genuine dispute over how best to calculate and account for the cost of executive options. But this is quibbling. Warren Buffett, a well-known American investor, put the case succinctly for tightening the rules on share-option schemes in the recent annual report of his investment company, Berkshire Hathaway. "Accounting principles offer management a choice: pay employees in one form and count the cost, or pay them in another form and ignore the cost. Small wonder then that the use of options has mushroomed," he observes. "If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And, if expenses shouldn't go into the calculation of earnings, where in the world should they go?"
Sure, some of his more paranoid moments are silly. Microsoft is not committing "fraud", this is all perfectly legal. But his fundamental recommendation for retirement funds to get out of overinflated stock is sound advice. Microsoft is big enough to hurt a large portion of our economy if their bubble burst.
Selling options on your own stock - especially puts, but also calls - just doesn't seem right and should probably be illegal.
If I'm a big company whose stock is trading at, say, $100, and I sell you a $110 put for $3 for three months from now, then isn't that basically just me selling you a warranty on how much the stock is going to appreciate in the next three months? In simple form, if it stays the same, I'm out $7... if it goes up more than $10, you're out $3. Sounds an awful lot like insurance (or bet-hedging, which is really what insurance is) to me.
This isn't baseball, you don't have to worry about things like point-shaving... if companies selling their own derivatives bothers you, don't buy them -- no company in their right mind would "take a dive" to make money off their own derivatives, the bloodbath they'd suffer at the hands of their own shareholders would be horrific.
FYI: I am seriously considering divesting myself of some of my own tech holdings, but more because I don't feel particularly comfortable with both my investments and my earnings coming from the same sector. And that's what investment is all about, really... deciding what risks you're willing to expose your assets to in order to take a chance on growing them.
This is my opinion and my opinion only. Incidentally, IANAL.
MOO;IANAL.
There used to be a picture linked here.
Lets follow the logic... stock market runs on PCs most PCs run windows MS stock grows coincidence? i think not.
Stealing $100=Stealing from 1 person roughly a weeks worth of living expenses is much different than stealing $10,000,000,000 roughly 1,923,076 YEARS worth of food. Those are not the same.
Oh, the consequences are not the same, no argument about it. Whether the moral character of the act changes depending on the sum of money in question is a much more dubious assumption.
I don't believe in the purity of the U.S. legal system. If you believe it is infallible, then we have a different argument.
I don't see what the "purity" or "infallibility" of the US legal system has to do with all this. Let me try to re-express my point of view.
The US (and most of the world) lives in a socioeconomic system called capitalism. This system is based on the fact that many things, including the non-material and intangible ones, can be owned by people and various entities. There is nothing special about software that exempts it from ownership. Given that the chances of the US declaring ownership of software illegal are substantially less than the chances of a large meteorite hitting the Earth in the next few years, I think we can all safely assume that the Microsoft's ownership of its software will continue to exist for some time.
Microsoft is a corporation, which is committed to increasing the wealth of its shareholders. It has to operate within the current legal framework in the US. It has to use all legal means to increase the shareholder value, and it does so.
You may believe that software needs to be free (as in beer, in the context of this argument). That's fine. Unfortunately, the US legal system does not share this view, and moreover, shows no signs of changing its mind about it. Given that, I find the distinctions between "natural" and "legal" means quite meaningless, and I don't think that the foundation under the Microsoft's assets is shaky.
Kaa
Kaa
Kaa's Law: In any sufficiently large group of people most are idiots.
Even if I could find any facts on this page to back up his outrageous claims (and I can't, all I can find is him saying over and over again that he has these facts), I still wouldn't believe him.
The next Cmdr Taco duplicate will be ready soon, but subscribers can beat the rush and see it early!
"To Steve Ballmer I would say, perhaps we could have a brief discussion regarding some ways to manage this situation. By now it should be clear that farming me off to your legal staff was not a good decision."
Aw heck, I don't know, but this seems like the key sentences in the article to me.
"Total destruction the only solution" - Bob Marley
This was a very astute assessment, AC. Thank you.
--
This is not my sandwich.
While Portfolio Theory provided quite unsurprising results, the way that Black/Scholes provides differential equations that usefully analyse what was thought of as statistical matters was pretty amazing, and has helped employ a surprising number of theoretical physicists in finance.
I would put index funds at the top of my list of "investments to consider" simply based on Harry Markowitz's 1952 Journal of Finance paper, Portfolio Selection. He didn't anticipate index funds yet at that time, but they're a pretty ideal representation of his construction of "efficient frontiers" and "optimal portfolios." (And I had his paper quite specifically in mind when I used the words "efficient" and "portfolio" in the same sentence...)
For the "compleat idiot," an excellent book on investing is A Random Walk Down Wall Street; it provides a reasonably friendly walk through modern finance theory, and happens to rank index funds fairly highly for use by "nonprofessional investors."
I like the idea of starting with a portfolio that's largely index funds, and gradually adding to that a reasonably diverse stock portfolio, as that allows avoiding the administration fees that mutual funds (of whatever variety) charge; that of course requires taking Buffet's position of "buying stock in order to hold it indefinitely."
If you're not part of the solution, you're part of the precipitate.
Yes, options can dilute the value of your stock. No, options are not being accounted for in the P&L because they don't really fit there. No, options are not very well accounted for in the balance sheet either, but every solution that has been tried has a serious problem.
Microsoft does buy the shares to fill the options on the open market, so they are better than companies that use treasury stock to give to employees who exercise their options. Their footnotes are good and are not misleading about the amount of options outstanding and the exposure that Microsoft shareholders face. Critics of options have no problem identifying the exposure because it is well documented in the footnotes. If you cannot or do not read and understand a financial statement, ask someone to help you or find a different investment vehicle.
This guy seems to really hate Microsoft...
But what he basically claims is that in Microsoft accounting (and specifically, in stating the earnings) the overhang of the existing stock options is not being considered. That's true. However, that's true for every company in the US that has issued stock options. This issue has been discussed by FASB (accounting standards setting body) several times and after quite animated debate, the existing situation -- that the companies are not obliged to put the outstanding stock options into their profit-and-loss statement -- was left to stand as it is now.
Basically, the situation is like this. Company X issues a stock option to employee Y at, say, $10/share. Let's say a year passed and the stock of company X is now trading at $100. You *can* say that the company sustained a $90 unrealized loss (I am ignoring the time value of money for simplicity) and that's exactly what Parish is saying. However, in the real world if the option gets cashed in, the company will not go onto the open market, buy a share for $100 and give it to the employee in exchange for $10. The company will just issue more stock.
Of course, this is not a painless procedure. The more stock is issued, the more the value of the existing shares is diluted (or "watered down"). If the company has 100 shares outstanding, each share was worth 1% of the company. If 100 more shares are issued, all shares will now be worth only 0.5% of the company, so the previous share owners clearly become worse off.
And that's exactly why the earning figures released generally show two numbers: one for outstanding shares (those that have been issued and are not treasury stock), and one on a fully diluted basis, which assumes that all stock options are turned into shares. It is quite misleading to say that this is a big scam that nobody knows about. Any investment professional understands what "fully diluted" means and that Microsoft does have a huge number of stock options outstanding. That hasn't stopped them from buying Microsoft shares in huge amounts.
Maybe the guy has a point in that the gullible public should be made more aware of the problem (and I freely concede that this *is* a problem: only not limited to Microsoft, not having such huge importance, and not likely to lead to the financial meltdown of the free world). But financial professionals know the situation quite well. And the measures that he proposes against Microsoft are quite ridiculous.
I suspect that Bill Parish at some point in the past shorted Microsoft stock (or didn't buy it, buying instead something else) and is now very very bitter about it...
Kaa
Kaa
Kaa's Law: In any sufficiently large group of people most are idiots.
In many cases, it looks like the Asian bug hasn't taught anyone much of anything. Even super developed Japan still can't get the basics of macro controls down (though that's much more to do with the messy state of coalition politics there)! Though keep in mind that transparency doesn't stop speculation, and regulation doesn't insure wise investment decisions, or optimal social outcomes- too many externalities, and too many purely speculative concerns. Part of the reason so much of the really "risky" traders are interested in those markets is precisely because they are so screwed up and susceptible to manipulation. That's how we get crazy things like George Soros litterally begging the world to protect itself from people like him!
This is how the corporate accounting rules work. They don't make any sense. There is a push to make stock option gains come on the company expense reports. It will probably happen. However, until then, Microsoft is following standard accounting rules.
However, as usual, Microsoft is doing a few shady things to exploit the system more than usual. Every tech company has HUGE stock options, the difference is the Microsoft plays more games then the rest.
Stocks are screwy anyway. According to economic theory, a stock's price = present value(future dividends), when in reality, there are no dividends because the tax structure makes capital gains taxed less. As a result, all earnings are returned and reinvested, making the company more valuable. However, because of the lack of dividends, the stock market has these problems.
Placing dividend income at (or below) the capital gains rate would fix the problems. It would force dividends to be paid giving stocks real values. Sure they would be based upon future earnings, but those earnings would start to come on established companies like Microsoft. Also, if cash on hand went to paying dividends, large companies wouldn't have nearly infinite revenue. Basically, profits go to the owners. However, by a shell game, instead of going to the owner, they are used to buy other companies, which increases the share price the amount that the dividend should (in theory).
This encourages the merger mania sweeping this country. A large, wealthy company with huge profits has 3 options:
1) Pay dividends
2) Buy companies
3) Pay dividends with stock buy backs
Dividends are out of the question for tax reasons. Three can cause trouble if it looks like you are paying a dividend (i.e., if Microsoft made %3 percent of it's share price in profits, they buy back 3% of the stock, which means that everyone's stock goes up that value, this continues until their are very few stock holders because the rest sold them back), however, this can cause suspicion as tax fraud. The resulting option is buying companies (or building internal divisions). Either way, a large company is forced to grow beyond it's optimal size, because real profits are out of the question.
Of course, if it grows beyond its means, diminishing returns kick in, growth drops, and the stock collapses... What a way to run an economy.
We need tax AND accounting reform.
Alex
Can you provide a reference to a statistically validated study to support this claim? All splits on the NYSE are reported; it should be simple enough to do a study of the price increases resulting for all the splits over the last ten years. I'd expect to see such results in some place like the Journal of Finance; it would doubtless be a feather in the cap of someone wishing to overturn the Efficient Market Hypothesis.
If your claim were true, then even the weak form of the Efficient Market Hypothesis would be false.
However, those that actually study such things (as opposed to those that are out to sell you their Technical Analysis Newsletter) find things like the following:
- Graham and Dodd's Security AnalysisIt seems entirely more likely that if stock prices continue to rise after a split, this results not from the split itself, but rather for whatever reasons there were for the stock to rise in price before, perhaps because the enterprise is continuing to reap unexpectedly high profits.
If you're not part of the solution, you're part of the precipitate.
I don't think ANY new stock is created when an employee exercises an option (at least for my recent company it wasn't). There are X total shares outstanding, and there are Y shares set aside for currently granted and future granted stock options. This way, when an employee exercises stock, there's no need to create these new shares -- they've already existed, all along, legally. Let's say that Z shares have been, to date, exercised (a few by joes like me, most by big execs). So there are currently (X - Y + Z) shares out in the market place, and (Y - Z) shares left to be exercised. When computing undiluted earnings, I guess companies use PROFIT / (X - Y + Z). Because companies like MSFT have so many unexercised options, they might prefer this measure to the fully diluted earnings, which is PROFIT / X, which would be significantly smaller. If one or more employees exercise many shares, then Z increases, and undiluted earnings go down. However, MSFT DOES NOT NEED TO GO OUT ON THE OPEN MARKET TO BUY THE SHARES AT $100 TO GIVE THEM TO A PARTICULAR EMPLOYEE FOR $30 (and this is where the Parish dude messes up his facts -- MSFT doesn't have a pyramid scheme going, at least not in this respect). In fact, MSFT gets to keep the $30 for themselves when they formally transfer ownership of the pre-existing stock from themselves to the employee. The employee typically sells the shares the same day in a post-IPO situation. However, in pre-IPO situations employees often exercise stock options (even before they are fully vested in them) for the tax benefits.
Other articles claiming the same have come along from more credible sources. Of course, if MSFT is "guilty" of "pyramiding," there are also a whole lot of other companies that are also guilty, particularly with the ludicrously highly valued activities that fall out of corporate mergers.
If "everyone else is guilty too," this undercuts this article's claims somewhat, as it implies that if MSFT is overvalued, then many other securities are similarly overvalued.
Which doesn't make Microsoft any righter, but does suggest that they're just a convenient "whipping boy" for someone's political concerns.
If you're not part of the solution, you're part of the precipitate.
Just a comment: I think it's just hilarious that all the /.ers are discussing economic theory. "Free Speech! Free Beer! Oh, and concerning those put options and how they affect the P/E ratio..."
wow, that's a first.
ya, since when is M$ losing money? Hehehe, thats a new one. Some people will believe anything they read/hear. and some web sites PRINT anything they hear. Where's the facts? If you believe that M$ is losing money, I have a bridge in Brooklyn that I want to sell you.
> hose are very good links, and proof that the guy from the original story isn't really a crackpot.
To paraphrase the famous aphorism about paranoia:
Just because you're right doesn't mean you're not a crackpot.
--
It's October 6th. Where's W2K? Over the horizon again, eh?
Sheesh, evil *and* a jerk. -- Jade
The whole point is that the Net Income number is questionable because they don't factor in employee stock options which are increasingly becoming a larger part of the overall employee compensation package.
The trouble is that if the stock options amount were to be included in the wage expenses, the net profit would turn into a net loss
I remember reading a Salon article about how the Dow and M$ weren't getting along very well recently- M$ got really pissed at something the Dow people published about them- anyone remember what happened? It seemed a little fishy to me, but I can't recall...
Microsoft, on the other hand, is a mature software company, who's growth rate is starting to level off.
My point is that they are making seriously large amounts of money in revenue, and thus deserve to be a hundred billion dollar company. Whether they deserve to be a trillion dollar company is up to stockholders, not you or me.
I don't know what Microsoft deserves to be, but if I were to spend 5 Billion dollars to make a car, and then wind up selling it for 3 billion dollars, would you buy my stock? Oh and BTW, I am a stockholder of Microsoft (I own S&P500 spiders, and they include a big chunk of M$).
- It targets a prominant public figure and alleges that he is at the head of a large scale conspiracy.
- Lack of firm evidence to support his position. I tried to read the spreadsheet, but my copy of Excel would not open it. Nothing else in the article gives me any confidence in his position.
- Various out-of-context bits and pieces are made to seem more important than they are. Specifically MS has been accused of manipulating its stock price by reserving money from rich quarters and turning it into profit during poor quarters. But this can only smooth out lumps and bumps, not maintain a long-term growth curve.
- Lots of references are made to people who don't believe the author, along with elaborate justifications for this. No doubt Alan Greenspan is snowed under by letters from crackpot economists and conspiracy nuts. This guy looks just like another one. Ditto the fund managers and newspaper editors. They know what a price support operation looks like, and this isn't it.
- Discussions of how courageous the author is being in revealing this truth.
- Predictions of apocolypse RSN.
I think MS is overvalued, but I very much doubt that the situation is this bad.Paul.
You are lost in a twisty maze of little standards, all different.
I do like to find the things goes on about the internet and computer industries. From the point of view of a casual user of MS products (aye!) I don't care about Microsoft financial perfomance a lot(I'm not a citizen of the USA, huh).
/. comminity likes to make fight rather INSIDE their own. I think it's better to unite and do struggle not against the principles of Microsoft (who cares about you?) but for the 'better future'.
I wonder about the future without a behemoth like Microsoft after me. Would we live in the world of green-screened terminals? Or unix communities got boomed in their advacement? (I don't think so, look about Kasparov vs the rest of us; who won? The rest of us are weaker than the DeepBlue, hah!)
I must respect the great ability of Bill Gates to handle the situation on his OWN way. I suppose he is a greatest hacker of the world, covered by a suit and lawmakers. He is cute and nice. Really, he is much greater than thousand of mitnicks gathered together. Think about it.
Okay. Seems like
Generally I won't to live in the world of computers. I need in people. Do you?
When you write a covered put, which is what Bill Parish claims M$ is doing, you only make money when your stock goes up, so it would be akin to, though not the same as buying calls on their own stock. Therefore it is not a hedge (who hedges against their own stock going up?)
Parish states that this is decidedly evil because MS is almost guaranteed a profit by just manipulating its own stock price with the various tricky methods outlined in the article.
I don't know if this is true or not, but I say what the heck..
So they are paying their people with stock options instead of money which means they don't use any of their profits to pay their people. Because they have so many people... actually paying them this amount would cost a lot, especially considering the high-caliber people MS grabs. Plus MS grabs some change because these people pay MS a fee to do the stock stuff.
Then... they say to the tax man that they have paid their employees salary+stock worth and take a big deduction. I knew that MS paid its people in stock, but didn't know that this is what happened.
So, what happens is that since the bulk of their salaries don't get deducted from the money they get, advisors and such indicate the MS is doing extremely well. Therefore MS stock is in demand and therefore goes up, and MS can pay its people with more stock because it is valuable....
And with things like the MSN thing, it can show that even though they have bought 250 million of WebMD, that they have actually made a profit of $100 million!!!! So they gained no money and lost none, but analysts say that they have been profitable.
Therefore they are artificially inflating their stock, and it is not based in real worth, but just their estimated value by analysts who are fooled by MS's schemes.
Don't understand the retirement stuff though.
I think I finally understand what he was saying after reading a few comments. I don't really know much about the stock market though.
Basically they are paying their people with stock options instead of money which means they don't use any of their profits to pay their people. Because they have so many people... actually paying them this amount would cost a lot, especially considering the high-caliber people MS grabs. Plus MS grabs some change because these people pay MS a fee to do the stock stuff.
Then... they say to the tax man that they have paid their employees salary+stock worth and take a big deduction. I knew that MS paid its people in stock, but didn't know that this is what happened.
So, what happens is that since the bulk of their salaries don't get deducted from the money they get, advisors and such indicate the MS is doing extremely well. Therefore MS stock is in demand and therefore goes up, and MS can pay its people with more stock because it is valuable....
And with things like the MSN thing, it can show that even though they have bought 250 million of WebMD, that they have actually made a profit of $100 million!!!! So they gained no money and lost none, but analysts say that they have been profitable.
Therefore they are artificially inflating their stock, and it is not based in real worth, but just their estimated value by analysts who are fooled by MS's schemes. Same as with things like Amazon.com?
Don't understand the retirement stuff though.
> I fully expect Microsoft's stock to take a serious dive sometime
> in the next year or two based on decreased earnings growth and
> declining margins, and some of these additional factors could certainly
> add to the downward momentum when the tide turns.
I'm not necessarily agreeing or disagreeing with you, but did anyone else notice the news that the Dow Jones average now includes Microsoft -- the first time a NASDAQ-traded stock has been included in that index -- along with Home Depot, Intel, and another company I don't rememeber at the moment? This makes me very nervous. The DJ is already hyper-inflated; adding two tech stocks is just going to make things worse.
Both stock buybacks and stock splits have long been considered legitimate tools for a company to use to keep stock value up for shareholders. Now the author wants to outlaw both.
If you actually read the text you pasted in you'd see that he only talks about doing it for 10years... which I guess is his idea for Microsoft to normalise...
Strange though.. his website, while interesting, comes accross as very extreme.... Maybe its cos he's been ignored for so long?
May contain traces of nut.
At times like this, I'm glad I don't have any money to lose.
Hmm, I can't say anything about the situation regarding Microsoft and all. But what if this is just an attempt by Mr Parish to attract attention onto his company? Does anybody know something about the credibility of this person and his company?
Take for instance, FAQ Item 6:
6) What if I am interested in hiring you as my advisor and has this helped your business?
Just found that interesting. I don't like Microsoft's marketing strategies. I don't own stock in the company (and I don't use their products, either). I don't know anything about Perrish and Company. Just a mild speculation :). With media, especially with webpages, you can never be sure of their integrity or credibility, really, because it's so easy to be anonymous on the web.
> Its hard to manuplate the Dow based on the choice of firms you put in.
Thanks for your post, because you told me something I didn't know. However, I still contend that it's manipulation. For example, CNN just reported that the 4 companies that came in had a 600+% growth rate over the past 5 years, whereas the 4 taken out had only a 60% growth rate over the same period. And the Dow has already raised its prediction for the end-of-year average.
Clearly, they've manipulated it to make it look better.
--
It's October 6th. Where's W2K? Over the horizon again, eh?
Sheesh, evil *and* a jerk. -- Jade
> Anything to keep those meaningless values from tanking!
And the Dow just switched out some traditional companies to make room for some active tech stocks. I have long thought that the fact that the DJ is an average makes it susceptible to artificial manipulation, to make it look like things are going better than they are. I think I now have an example to cite.
Best would be if they only swapped one new company in per year or so, rather than the four at a time like they just did.
Better yet if they had avoided swapping in Micorsoft, which is allegedly under investigation by the SEC for using a fraudulent/illegal cookie-jar scheme to inflate its stock values.
Conspiracy theorists are, of course, free to conclude that putting MS on the DJ was a move to interfere with the DoJ case, since any hard hit on the price of MS stocks will have a very visible effect on the DJ average, after which the defense will cry "Our society can't afford a negative judgement!"
--
It's October 6th. Where's W2K? Over the horizon again, eh?
Sheesh, evil *and* a jerk. -- Jade
One very scary thing about tech companies in general is that the Stock Options that they give employee's as compensation to make them stick don't count as costs for accounting purposes. But the Options do really count as money, they dilute share holder value, in other words Options really are costs. To quote the Economist "For instance, Microsoft, the world's most valuable company,
declared a profit of $4.5 billion in 1998; when the cost of options awarded that year, plus the change in the value of outstanding options, is
deducted, the firm made a loss of $18 billion, according to Smithers." from 7-Aug-99, sorry a login is required to read old issues.
This is not just a problem with Microsoft but with tech companies in general, I think that this accountancy rules does confuse investors to the profitablity of companies and makes tech companies which have a high percentage of incentive options appear much better on paper than they actually are.
"His[Mankind's] heaven is like himself: strange, interesting, astonishing, grotesque." -Satan "Letters From Earth" Mar
I'm not an accountant, so take this for what you will, but as I understand accounting, it is a pretty subjective profession. Of course there are standards, but things like how long to depreciate property investments, which inventory system is used (FIFO or LIFO), etc., all have a major effect on what the books actually look like. It is _consistency_ across financial statements that lets you really evaluate how a company is doing.
This guys comments about how we should prohibit microsoft from buying back its own stock - that's absurd. Treasury stock is a basic concept in any publically traded company, and this guy's claim to prevent that illuminates how much he _doesn't_ know what he's talking about.
This is just some fool trying to scare everybody into selling off MS stock, and he's getting a lot of undeserved attention for it.
LL
"If you are falling, dive." -Joseph Campbell
This is not a new issue, and is certainly not limited to Microsoft Co. I think of a greater concern, should be the overall status of the equities markets in the U.S. at present.
f .html
u rrent/ld0164.html
u rrent/fn8276.html
If you care to learn more, here are some very good resources:
Warren Buffet on the Stock Market:
http://www.pathfinder.com/fortune/1999/11/22/bu
"Killing Glass-Steagall":
http://www.economist.com/editorial/freeforall/c
"How Big is the Tech Economy":
http://www.economist.com/editorial/freeforall/c
Real men don't need signitures!!!
I've always thought of a stocks' inclusion in an index as more affecting the stock than the index, since it creates demand for the stock via mutual funds that track the index, and are therefore forced to buy it. In this case that isn't such a big deal, since there arn't too many funds that track the DJIA (many more for the S&P500).
As far as making the DJIA more overvalued, I'm not sure how critical that is. IMHO if/when Microsoft dives, it will quite likely drag down the entire tech sector and hence the NASDAQ at least temporarily, and that would be a much more significant effect than it would have on the DJIA.
BTW the other was SBC communications.
There was an article in Boardwatch magazine a few years ago that went into this very nicely. The author compared the situation to a game of musical chairs. People know that there are too many competitors in the industry, and that it can't sustain its current level of investment for too long without having something to show for it. So, everybody's burning money at a prodigious rate in an attempt to gain "mindshare". The goal is simple: be in front when the venture capital stops. It's reached a level of insanity where it's hard for small businesses with sound expansion plans to get venture capital because "they're not agressive enough."
It's kind of like the cold war, in a way. The US "won", not on any ideological or technological superiority, but because we were able to keep spending for longer than the Soviets. The tech industry seems to be emulating that model.
Forward, retransmit, or republish anything I say here. Just don't misquote me.
The weird part is his claim that the reason nobody's heard about this before is that Microsoft is a major advertiser in media.
That's weird because I've read several articles highlighting the strange ways that Microsoft and other companies book profits in order to beat Street expectations, just as there have been a number of recent articles on the creative ways Internet startups book all these stock options they give their employees to minimize their future liability (at least on paper).
This is nothing new or surprising.
Bunker Hill - there was a lesson to be learnt. That the money is not 'running' elsewhere means that the chumps/moms/dads and kiddie daytraders will one day end up holding the parcel. Even if they drop 20%, that will be nothing. MS should start retarding this by conservative accounting.
"Kook" is too strong, and "idealogue" not strong enough. I think it is fair to say that this guy is more concerned and hyperbolic than most commentators, but I have read a number of stories from reputable sources (NPR, The Economist) that indicate that MS has had actual losses due to both time shuffling of earnings and the lamentable fact that no one (not just MS) has to report stock options as a debt.
In other words (and remember, not only am I not an accountant nor a lawyer, but I'm barely fluent in basic economics, so this is definitely a media created impression, not knowledgeable reportage), it may well be that MS has had multi-million dollar losses in the last few years. So have many companies that continue to have high stock prices and good long-term prospects.
I would very much like to see a change in the law requiring that stock options be included in financial reports as debts, because THEY REALLY ARE DEBT. The reason that I think the banking and SEC big-wigs are not all bent out of shape over this is NOT that MS is buying their silence, but rather that this has become a pervasive practice and changing radically and suddenly would probably have catastrophic consequences.
I would expect to see this practice regulated increasingly over time.
What I do not know is if this practice, if added up across the market, really amounts to a dangerous bubble. That would be an interesting question. The danger would depend on the ratio of vested, unredeemed stock options to the market cap of the company all weighed against earnings. If the P/E ratio is already out of whack and the percentage of options in total market cap is high, well, that would have to be risky, wouldn't it?
I guess I'd side with this gadfly to the extent that I think we should agitate for tighter regulation of the accounting practices that allow the "shadow debt" of options, and for greater disclosure.
Beyond that, I'd like to hear from several other experts and economists. This guy's story is interesting, but long on conclusions and short on data.
I believe that the author of this piece fully believes in what he writes about. It is unfortunate that he didn't include any of his actual analysis in the article, but then again, how many of us really want to look at all of the math involved? Well, OK, I do, but I've got a degree in Accounting, so I like that stuff.
I see some comments on Slashdot saying that what is mentioned in the article is just standard business practice. That is partly true. As the accounting rules currently stand, companies are allowed to play some minor games with their earnings statements. Examples of these include how inventory is valued, and how you account for orders at year end that you don't ship out until the next year. Probably the most flagrant of these is the "pooling of interests" that companies are allowed to use in mergers so that overpaying for a company doesn't hit you as a real expense. Thankfully that goes away at the end of next year.
However, the author of the piece makes it impossible to really see the extent to which Microsoft just has smart accountants and finance folks playing the game legally, and to what extent those smart folks are "cooking the books." You just have to realize that corporate accounting is really more art than science, and you do what you can within the law to look as good as you can. If I was an investor in MS (which I'm not), I wouldn't be worried by the author's comments. In fact, MS should go up in the next few days as all Dow index funds (not that there are that many of them) have to buy the stock to stay current with the index.
You can trust me. I'm with the government.
And yet, people still think that stock markets are a great way for society to decide how to invest it's time and resources.
They have worked much better than any alternative system that I know of... Or are you claiming that the government allocation of resources works better?
It's not democratic, and it's very obviously not even pragmatic.
It was never supposed to be democratic (in the one person -- one vote sense). You don't decide where the society will invest its capital -- all you do is buy pieces of companies that you like. The rest works out by itself. Read Adam Smith -- he understood how this works a while ago.
As to being pragmatic -- I take it that you know better than everybody what is pragmatic and what is not, right?
A casino in which the more money you have, the more likely you are to win.
A casino, maybe. If you buy and sell stocks randomly, it is mostly luck that determines what you'll get at the end. I don't see, though, why the more money you have the more likely you are to win. Let's say that I buy 1 share of Microsoft. The odds of the Microsoft stock going up are exactly the same for me and for Bill Gates.
Kaa
Kaa
Kaa's Law: In any sufficiently large group of people most are idiots.
Microsoft has paid their employees partly by stock options. This does not show up on quarterly earnings reports so the corporation loves it. As long as the stock price goes up the employees love it. The problem comes when stock prices crash, which all through history, they eventually have done. The situation then does indeed look like a pyramid scheme.
Microsoft also has been accused of "cookie-jar" accounting. The story here is to keep, deeply hidden, a reserve fund. In bad years, money is taken from the reserves and sneaked into revenues, in good years revenue is moved into the reserve fund. The result is steadily rising earnings and, hopefully a rising stock price. There are still probably on-line newspaper articles on this subject, especially in the Seattle area. Microsoft fired an accountant for raising complaints on this subject. He was then "bought off" by a generous out of court settlement, large enough for a comfortable "retirement".
The real problem facing the SEC and the FED is that Microsoft is not the only high tech firm using "creative accounting" practices. The whole high tech sector is a bubble waiting to pop. As Barron's likes to point out, there has never, through all of history has been a good end to a stock market bubble! If Microsoft's stock price comes down, the whole sector will crash and burn gloriously.
Regulators are faced with an impossible task, to slowly deflate the bubble down to sustainable stock prices without causing a out of control crash. There indeed has been talk of tightening accounting standards especially for high tech companies and also a raising of margin requirements to control short term speculation. Stay tuned to see how the story turns out.
> If MS stock were to deflate to it's normal value, I'd strongly worry about a deflation of stocks across the board, as the start of the pending 'diaster' that may hit the market.
That may be the plan. Let the bubble burst, have the uninformed/misled masses sell off cheap, then let the pros move in and buy cheap and sit back and wait for the market to climb back up to 10K within a year or so.
The stock market is, IMO, just a machine for pumping money out of amateurs' pockets and into the pros' pockets. For everyone who gets bit by buying high and selling low, someone else rakes it in by buying low and selling high.
--
It's October 6th. Where's W2K? Over the horizon again, eh?
Sheesh, evil *and* a jerk. -- Jade
This seems to have a touch of scare in it, but I wouldn't be surprised at all if it were true. It's funny that all the charts are in MS Excel.
It's 10 PM. Do you know if you're un-American?
Of course, this is not a painless procedure. The more stock is issued, the more the value of the existing shares is diluted (or "watered down"). If the company has 100 shares outstanding, each share was worth 1% of the company. If 100 more shares are issued, all shares will now be worth only 0.5% of the company, so the previous share owners clearly become worse off.
Yes, but you are forgetting one important thing.
Existing Common stockholders have the right to maintain their proportianate ownership of the outstanding stock when new shares are issued. This is known as preemptive right.
For example, if you own 10% of a company's outstanding common shares and the company issues an additional 500,000 shares, you automatically have the right to purchase 10%, or 50,000 of the new shares. This offer MUST be made to you before the new shares go out.
SLASHDOT has no opinion..that IS a FIRST I think. C'mon ROB, TACO someone has got to HAVE an opinion that is unbelievable...I am bereft, afloat so to speak...lost within the sea of mediocrity and you expect me to form MY OWN OPINION...shhuuddddeerrr
some one loan me $.02 please I am really broke
Dallas area investors should be very jumpy after reading a report like this. They saw what happened when Jimmy Ling went to work on Ling Temco Vought (stock collapsed, Braniff Airlines never recovered), when Dallas' biggest bank went bankrupt (bad loans to oil and real estate, good old boy practices), and the Billy Sol Estes schemes ( took much money by unethical practices, but only broke one law when he declared that an empty silo was full). It's your money, and everyone wants it. Be careful.
Sure M$ is a pyramid scheme as are virtually all tech stocks. Technology actually works in such a way. Why do you think Moore's law works? Will it eventually crash? Doubtlessly but not in the way economists imagine. Before technology can crash in any big way we must have enough technology built up to deflate the cash behind the technology. At this point we should flip over into a gift culture completely as the economics behind technology are crashed. It isn't exactly a bad thing but just a change and changes can hurt even if they are healthy. Now maybe it's true M$ is carrying the whole thing a little to far. It does worry me a little having so many eggs in one shakey basket. I keep watching their spin.. so forward a few years ago but now begining to slow and wobble towards reverse. The people I really pity are their employees that work 50 hour weeks and take it all as stock expecting it to pay for their retirement and childrens education and such. If that bubble bursts they'll be the ones hurt the most. I for one would never put all my investments in any one product. It just isn't smart. :)
At what price learning? At what cost wisdom? The price is a man's peace of mind, and the cost is his life.
Regardless of how you regard the 'facts' presented in this analysis of the microsoft stock prices, the sudden jumps and dips of almost all the tech stocks in the last couple of months on the slightest hint of news have had to have made you look up.
The analysis comes out like this: the stock market, and the tech stocks in particular, are due for a catastrophic crash. It's interesting to note that a couple of tech stocks have recently made it into one of the major stock indices in recent weeks (days?). Ask yourself what the end result might be if a these tech stocks tumbled, taking the market with them. After all, what is a market crash but a coordinated loss of confidence.
While discussing some of the more interesting points of the industry with a friend, a relevant point came up. Before the last two major stock market crunches, the major signs have been reduces speculation by the bigger (better informed?) trading houses, and share trading instead being thrown in the face of the common small investors.
Not only have we see this happening, but the recent sudden promulgation of small on-line trading places might well use the technology to achieve its own downfall.
The irony of it all.
MS certainly has engaged in FUD-slinging against (your favorite MS adversary here). Could FUD be used effectively against them? HAS FUD been used effectively against them?
Tangent: And supposing that the MS stock bubble burst (my read of the immediate effect of well-received FUD), would the stock of the entire tech sector plunge with it?
More questions than answers, but it's an interesting mind puzzle...
> This might explain why reporters are afraid to
> print the facts, for instance that Microsoft
> took a $9 billion tax deduction for wages in
> 1999 and didn't charge a dime of this amount
> against earnings.
Employee wages for R&D are tax deductable. It is done in the large corp I work for.
This may sound like a ridiculous thing to do, but I'd like to look at the math of this guy. Basically, a quick check at how a company selling about 50 million units a year worldwide at about 200$ profit each could possibly lose money. Between selling it's office suite and Windows NT to each company in America and charging about 400$ each, they must make money. Real money. That's about $10 billion dollars a year in variable profit and $20 billion a year in sales, by this estimate. Plus they sell tons of databases, e-mail and servers. Truly, I don't understand what all the hoopla could possibly be about. Are companies NOT going to buy Windows 2000 in droves? That's the issue, not the accounting practices. P.S. this was just a guess, but on microsoft's page: http://www.microsoft.com/presspass/fastfacts.htm They say: Net revenue $19.75 billion Net income $7.79 billion I'm sorry, but doesn't this seem reasonable? They can do whatever obfuscations of the accounting they want, but the fact is they're making money hand over fist. Until that changes, and we can change it by demonstrating better products than Microsoft's, they will be around. -Benjamin Shniper
This may sound like a ridiculous thing to do, but I'd like to look at the math of this guy. Basically, a quick check at how a company selling about 50 million units a year worldwide at about 200$ profit each could possibly lose money. Between selling it's office suite and Windows NT to each company in America and charging about 400$ each, they must make money. Real money. That's about $10 billion dollars a year in variable profit and $20 billion a year in sales, by this estimate. Plus they sell tons of databases, e-mail and servers. Truly, I don't understand what all the hoopla could possibly be about. Are companies NOT going to buy Windows 2000 in droves? That's the issue, not the accounting practices.
m
P.S. this was just a guess, but on microsoft's page:
http://www.microsoft.com/presspass/fastfacts.ht
They say:
Net revenue $19.75 billion
Net income $7.79 billion
I'm sorry, but doesn't this seem reasonable?
They can do whatever obfuscations of the accounting they want, but the fact is they're making money hand over fist. Until that changes, and we can change it by demonstrating better products than Microsoft's, they will be around.
-Benjamin Shniper
Parish and Company? Who the hell is that? Exactly. One of the oldest tricks in the book for these "financial analysts" is to make wildly outlandish predictions. This gets them the media exposure they need. Afterall, if every wall street financial advisor agreed, what would that do to the stock market? This guy doesn't care if you believe him or not. he just wants you to think he has information you don't, so you'll think your money is safe with his firm. I bet he owns a nice chunk of Microsoft to boot.
I feel I am somewhat qualified to make a comment on this subject, I have a master's degree in accounting, among other things.
This guy is on crack. This guy lists a long series of things MS is allegidly doing "wrong" and only one has any basis in fact and MS was already fined for it. As for the rest of it (So what if MS talks its employees into taking part of their wages in Stock options? Perfectly legal and legitimate. Yes, there is a good reason these aren't recorded on the balance sheet of a company.... Generally Accepted Accounting Priniciples don't require it, no other company reports them there either) it is largly a list of semi-legitimate sounding financial and accounting buzzwords with nothing to back it up. Probably impresses the ignorent (just look at all the comments above), but the SEC guys probably shoot their beverage of choice out of their noses when this guy comes around.
In conclusion, lay of the crackpipe, dude.
DrLunch.com The site that tells you what's for lunch!
Didn't they claim something about a breakup clause in new MS contracts? I didn't really follow the story, but there was something about it on the register.
Seems like November 8th Keeps getting closer and closer :)
This guy doesn't seem objective because he talks way too much in the first person. An objective analysis would refer to facts, conclusions, and the method used to reach those conclusions. I see none of this in the article. Mostly what I see is Parish trying to create fame and fortune for himself.
As to the conclusions drawn, I will not deny that Microsoft uses underhanded financial illusions to inflate stock, but I don't know if these illusions are of the scale that Parrish suggests. Anyway, I will watch for a more objective report for someone not seeking fame and fortune.
-M
Speaking as a man with three years' experience as a stock market regulator ...
/. was trying to "manipulate MS' share price" is equally brainless. What on earth does the price of MS have to do with andover.net's IPO? You seem to be labouring under the impression that the stock market is a zero-sum game.
You're full of it, mate, and a poor Anthony Elgindy wannabe to boot. Slashdot posted a link to a site with a critique of MS accounting policies, which critique adds nothing to information already in the public domain other than the word "fraud" (which it is cleary wrong to add). Slashdot have not libelled MS, nor have they done anything which might bring down the wrath of the SEC. In any case, the public statement provisions of the law relating to IPOs have definite exceptions for media outlets (Or should newspapers stop publishing news in the run up to the IPO?)
And finally, your accusation that
full of it, I reiterate, and you will get no thanks from the SEC for wasting their time.
jsm
We get a lot of astroturfers here, though most of them post under the name "Anonymous Coward". [I once jokingly suggested changing AC to "Astroturfing Coward".]
However, I'm not conviced that there's a lot of ballot-stuffing going on here. IANA* [lawyer, economist, whatever], but it seems to me that the author raises some valid points, but tries a little too hard, and ends up overstating his case.
Most of his apparently valid points aren't exactly news, anyway.
Just my opinion; worth approximately what it cost you.
--
It's October 6th. Where's W2K? Over the horizon again, eh?
Sheesh, evil *and* a jerk. -- Jade
Slashdot readers are normaly somewhat anti-Microsoft. Howcome all the pro Microsoft posts here on this subject? Could someone be stuffing the ballot box???? I think I smell a rat!
It dosen't really matter if Mr. Parish's analysis is correct or not. Many people have a large portion of their investments in Microsoft stock because it has performed so well.
A large portion of investors are individuals with E-trade type accounts, If just 10% of microsoft investors see his analysis and believe it, they don't have the ability to verify the data, many of them get scared.
Q: What happens if 5% microsoft investors get scared and pull their money out?
A: Microsoft stock drops by a few dollars, other people get scared, rinse, repeat.
I an sceptical enough to disbelieve this unless I see a few qualified independent audits of this analysis, but how sceptical are people when their money may be on the line?
UK firms fear cost of tighter rules on options
"British companies may be forced to reconsider the way they reward staff as the result of a new threat to make granting share options more onerous. The Accounting Standards Board (ASB), an independent regulatory body with the power to set accounting standards, wants to make companies reflect the cost of issuing share options in their annual profit and loss accounts... While the ASB proposals are a long way from being finalised, the body is confident it will succeed in changing the rules. Andrew Lennard, assistant technical director of the ASB, said: "The arguments are compelling. I think we have the ability to set them out in a way that will command acceptance."
In recent years there has been considerable movement towards convergence in accounting standards. If the ASB can establish a respected and workable standard in the UK, this could make it much easier for the FASB to bring in changes in the US.
On the other hand, he does make some good points:
- There really is a problem with how options are accounted for, and MS does take advantage of this "legal lag" more than most.
- Selling options on your own stock - especially puts, but also calls - just doesn't seem right and should probably be illegal.
- Having to pay a $4M settlement to an internal auditor who was fired and then invoked the whistleblower act seems really fishy to me.
There seems to be a good chance that MS really is cooking the books even more than is generally allowed (which is still way too much IMO). It's certainly not proven, and probably won't be by this author, but there seems to be ample reason to look into the matter more carefully.Slashdot - News for Herds. Stuff that Splatters.
Oh, I don't think so. He advocates divesting in Microsoft, not the entire market. I favor a slow deflation of Microsoft over a depression anyday.
"Reactionaries must be deprived of the right to voice their opinions; only the people have that right." - Mao
It does no good for free software and GNU/Linux advocates like the folks at slashdot to steer their readers to baseless accusations. This makes slashdot just as bad as the Microsoft disinformation machine they abhor.
Furthermore, MSFT employees have many more options that have yet to be vested. The yet to be vested options are at least 3 times larger than the vested options. So we are talking here of over $180 billion possibly in the next 3 years. Money doesn't grow out of thin air, someone has to ultimately foot the bill. Now who is footing the bill for MSFT's options?
rodent...
rodent...
Tactical nuclear weapons are a viable alternative!
The article seems to want to avert a 20/30's style crash, yet his suggested solution is likely to create such a crash. M$ undoubtedly practices 'alternative' accounting procedures, but that's its job. It has to ensure that it acts in the best interests of its shareholders. E.g. what is wrong with issuing puts on its stock ? This provides a good source of revenue for M$ and could act as a good brake during minor price drops. Looks like a hedging strategy to me, and if a large corporation doesn't employ hedging strategies then its shareholders should be worried. The other thing that seems to be ignored, is that the whole financial system works through self-fulfilment. The Mutuals who control a great deal of movement in the stock market have bet their cash on these obviously dodgy stock prices and consequently are unlikely to start divesting in bulk and consequently cause a price crash.
Since /.'s new corporate owners are in a pre-IPO "quiet period" mandated by the SEC, there are certain things they can't talk about. If they do talk about them, the SEC will come down on them *very* hard.
/. knows either. I'd play it very very safe myself, just like Rob did.
I have no idea if an article casting doubt on the accounting practices of M$ and the supposed lack of response on the part of the government agencies who are supposed to prevent this kind of thing would transgress against the "quiet period" rules... and I doubt if anyone at
There are times for humorous comments, and times to zip your lip.
Various out-of-context bits and pieces are made to seem more important than they are. Specifically MS has been accused of manipulating its stock price by reserving money from rich quarters and turning it into profit during poor quarters. But this can only smooth out lumps and bumps, not maintain a long-term growth curve.
Maybe, but it's still illegal. With the valuation of Microsoft's stock (P/E approx. 60), it's very important that they show consistent earnings growth and beat consensus estimates. If they wern't "managing" their earnings, the stock would unlikely have this sort of valuation.
I'm not sure about the legality of speculating on their own stock (selling puts), assuming it's true, but it's certainly artificially supporting the stock. If they genuinely thought the stock was a good value (which they don't!), they'd simply be buying it back...
I fully expect Microsoft's stock to take a serious dive sometime in the next year or two based on decreased earnings growth and declining margins, and some of these additional factors could certainly add to the downward momentum when the tide turns.
Warren Buffet is adamently opposed to stock splits -- he refuses to permit them for his own companies, and discourages them publicly for others.
:)
He believes a stock split artificially inflates the price of stock, and would rather see large pools of investors (as in a mutual fund) buy single shares of high-valued stock to split among investors. You can invest in mutual funds which simply own shares in Berkshire Hathaway.
This goes with this investing advice that "the ideal amount of time to hold a stock for is forever". It's good investment advice, since it relies on the core meaning of the market -- we buy stocks because we believe companies will make money, and we want a share in the profits. It's the furor that ensues when we forget this and start madly speculating that causes investment bubbles and overvalued markets, which is bad for everbody.
Basically, Buffet is the antithesis of a day trader. Obviously, I have a tremendous amount of respect for him
The Swiss financial paper CASH (www.cash.ch) had an article on real valuations of companies, based on a survey done by a London (based or branched) bank. In essence, if companies properly declared pending stock options, they'd be valued a lot less. Microsoft was clearly the leader, but as I recall, no company would have ended up with a "-" in front of the bottom line.
> At this point we should flip over into a gift culture completely as the economics behind technology are crashed.
Great! Give me your TV!
The revolution will NOT be televised.
AFAIK the well documented tendencey for stocks to rise immediately following a split is due to the surprisingly common desire of people to buy whole lots and/or larger amounts of a stock.
So if you have $5K to invest, but the stock is at $100, you can't afford a full lot and may hold back for that reason(!). However, it it splits 2:1 and becomes a $50 stock, then you can now afford your 100 shares. You'd be surprised at the number of intelligent people who think like this!
Of course, as with the "January effect", after a while people play the effect itself, which helps to further propagate it.
The reason stock options *may* be valuable is that they *might* offer a means for their owner of purchasing shares at a price discounted from the current stock trading price. The stock price *may* be related to the value of the corporate assets but usually is more closely related to the anticipated future earnings of the corporation. You say: "if the analyst is going to adjust the liabilities because the assets are more valuable then he should adjust the value of the assets in the same way." This is correct if the assets being adjusted are the corporate assets. This is incorrect when you imply that the corporate assets are increased when the common stock trading price increases. A stock option represents a committment by Microsoft to subsidize the purchase of shares common stock at some future date or a committment to issue additional shares of stock at some future date, thereby diluting the value of all shares outstanding. As such, it represents an unfunded liability. If the stock price increases, this liability increases but the corporate assets do NOT similarly increase. I want to see that corporate balance sheet that shows the market value of the outstanding common stock as a corporate asset.
http://www.economist.com/editorial/freeforall/1999 0807/sa1604.html
Yet the stock market values it at several times the value of the top Oil company in the world.
I don't know about the article---I'm no Economist, but MSFT > XON on the stock market definitely seems wrong.
I've been saying this for years. Everyone said 'no thats not possible, you cannot artifically inflate that stuff'. But it would definitly be a challenge for Microsoft to do it...but I bet if anyone could do it Microsoft could do it.....large unannounced cash assets in the past.....'voila look we have an extra 1 billion dollars'. Really do they support their software that much that during a time when they have no new products, and people aren't really buying more stuff, and they hire so many more people, that they can really have that hire of profits?
...and it didn't seem irrelevant. He has his facts in order and the fundamental problem was well put. M$ has been lying extensively for years. I had wondered how a major company could put off MAJOR (NT5) product release indefinitely and still have 40-50% profit margins, now I know.
+&x
Please dig down these threads moderators, this is a valuable post languishing.
If there is a stock market bubble, and we are headed for a blowout, then MS will not be the cause. To me, the author seems a little too desperate that we blame MS. Slashdot would seem a perfect outlet for this kind of fud, and I am glad that most responses see right through it.
Recently, and concurrencly with author's claim of having pound on all the important doors of wall street, the NYSE took out the last of the physical-productive companies on their industrial index (Chevron, Union Carbide etc.), and it put in media-productive companies (MS, Intel etc.) Even GE is over 50% media now, with its investment in radio and tv stations. As a result, the only major product delivered by the Dow Jones so-called Industrial Index is -- big media.
If a bubble developes, it will be because a declining physical economy (farmers bankrupt, steel mills and power plants closed, etc.) cannot be intersected with an exploding financial market, which is fueled by increasing debt, both personal and corporate, and new currency required to support it.
For example, the GNP recently increased 4.5% annual basis, including the negative economic impact of closing farms and steelmills and the positive productivity of opening of new webservers (porno business is included in the GNP growth, to emphasize the point), while consumer debt, which in our system is where new currency is created, has been increasing at 40% a year for the last three years. It's a Weimar Germany situation. The collapsing physical economy is aggravated by our expanding debt to the IMF, which kindly lends us an accounting-type currency for settle our negative balance of physical trade with foreign nations at the rate of 30B per month. The result is that the cause of the bubble is a much deeper, economically structural issue, than a large stock option accounting practice.
There are two bottom lines: a declining physical economy cannot intersect with, i.e. cannot support indefinately, an expanding trade deficit and expanding consumer-merger debt and the monetary issues required to float the trade deficit and debt. The other bottom line has to do with broader issues such as national sovereignty and the fact that, under our system, our currency is issued as a fictitious debt, upon which real physical interest must be paid.
The problem is not MS, as much as I hate windows.
- A.P.
--
"One World, one Web, one Program" - Microsoft promotional ad
"Remember when the U.S. had a drug problem, and then we declared a War On Drugs, and now you can't buy drugs anymore?"