The Price You Pay Does Not Matter - How Microsoft reflects poorly about the return prospects of investing in the stock market

Microsoft is the most valuable company in America.

You probably didn't know that.  Few people know that Microsoft commands the largest valuation in the S&P 500.  It is an economic powerhouse, returning to shareholders substantially well over 100,000% return since IPO.

Microsoft isn't a hot stock anymore, business schools probably have moved on from teaching about Amazon to Lyft or Uber at this point, not Microsoft.  Maybe they've even moved on from them to talk about fake meat companies like BYND.  Goodness forbid they teach about anything related to WeWork or...   Ok I'll stop while I'm ahead.

Microsoft commands a truly impressive market capitalization of over 1.1 Trillion dollars.  This pales in comparison to our national debt, but is an impressive figure.  They have 38 billion dollars in INCOME, each year.  They have 130 billion dollars in sales (revenue) each year.  The Price to Sales ratio is 8.3x, a truly ridiculous figure.

You're not an investment professional,  these numbers don't mean much to you.   I get it.  Glancing at them, they are large but not interesting.  In reality though,  they are obscene.

Here is a quote from the CEO of Sun Microsystems from back in the original 1.0 tech bubble (about Price to Sales (revenue)):

"At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?"

In this economic bubble you see before you,  the likes of which has never been seen before, the average global investor is paying over 8 times sales for the LARGEST company in the world.  

The counter argument to this is that Microsoft is going to dominate X, Y, Z and double their revenues over the next X years.  Do you know how much they grew their revenue annually over the last 5 years?  7 whopping percent per year on average.  7%.  In the longest economic expansion in the history of the world,  the largest company in the world, selling for 8 times revenue, could only grow their revenues by 7% per year.  This is not an indictment,  7% is a large figure when you are talking about 130 billion per year,  but NOT when you are paying 8x revenue per share.  

The truly hysterical aspect of this is,  do you know that at no time over the past 10 years has Microsoft traded at such an impressive price to sales figure?  Think about that for a second.  One of the most successful companies in a generation, didn't trade at such a premium on sales at any period EXCEPT for now,  where employment is strong where we've almost gotten all we can get out of the "spare capacity" in the economy.  It has gotten WORSE, not better in each of the last 9-10 years.  

Buckle up my friends, this will not go away quietly.  This is going to end in disaster.  

Nobody knows what the trigger will be,  but when it triggers, look out!