It May Be Better Late Than Never When Buying Microsoft Stock

Microsoft (MSFT) -- there is no more classic could'a-should'a-would'a in investing circles.

Just ask yourself, how many investors brag that they knew -- always "way back when" -- that Microsoft would be the stock story of the decade? Yep, hard to find anyone who didn't predict the software giant's success long before it was certain. But the question that separates the girls from the women is, how many of them actually bought the stock way back when? Could'a, should'a, would'a.

Chances are those three words were repeated more than once this past week, as the company's earnings beat the Street yet again with self-described "awesome" demand. Mister Softee's stock jumped 7% Wednesday and was hardly touched by Thursday's market carnage, as of late morning.

A friend of mine certainly knows the would'as well. He's been kicking himself for years because Microsoft is nowhere in his portfolio. Sure, he recognized (way back when, natch) that the company is terrific, but every time he was tempted to buy, the price just seemed too high. "It's up 5?" he asked just yesterday, eyes fixed to the plus signs on the stock's chart. "I could'a, should'a got in last week."

"So buy now," I suggested. "What?" he asked incredulously. "Can't add now -- it's overbought."

Sure, it's better to buy low than high. (See Cramer's recent column, Pounce on the Negatives.) But sometimes, it's best just to buy. Say, not so way back when, in 1997, you had bought Microsoft at the year's high and held until now, you'd already be up 150% so far. Bought at the high a year before, and you'd be up twice that much. If you got in at the high in '94, you'd be counting a cool 1,000% return.

Of course, the relevant question is, what about now? I checked in with some of the top-performing techies in the mutual fund business to see what they think.

Can't ignore Garrett Van Wagoner. Each of his five tech-taut funds is up better than 200% in the past 12 months. And although he expects to continue outperforming Microsoft stock, the San Francisco-based chart-topper thinks a long-term investor can't go wrong with a buy, even at current prices.

"The thing is, you don't want to buy Microsoft when it gets cheap relative to the market because there would probably be something wrong with it. It's like a Rolex watch. If someone wants to sell you a Rolex for 50 bucks, you don't want to buy it." But Van Wagoner's (VWTKX)Technology fund includes Microsoft among its top holdings, and he says that the future is bright. "Microsoft isn't gonna lose any competitive position at this point. If anything, these guys are gaining."

But hotshot manager Phil Treick, who recently left the highflying Transamerica (TPAGX)Premier Aggressive Growth and (TPSCX)Premier Small Company funds to set up shop on his own, warns that shareholders should keep realistic expectations of future gains. "Sure, if it's a long-term investment and you believe in the company and believe in technology, I think you can own this. Yet the prospect of getting a 10-bagger out of Microsoft is highly unlikely."

It's also highly dependent not so much on management as on the market. Firsthand Funds' Kevin Landis, manager of the No. 1-ranked mutual fund for the past five years, says, "If you're going to invest in a great company that's an established player, it's already got dominance built into its stock price, so it'll look like it's too late. It's not like they're gonna pick up more market share or get more operating leverage. No, there's only one way stocks like this are gonna go up: top-line growth, which has to come from growth in the end market."

Landis is betting big that Microsoft can count on that. He has nearly 5% of his (TLFQX)Technology Leaders fund in the stock. "You have to believe that the end demand they satisfy is going up."

No question, this is not a unanimous view among money managers. Value guys cringe at Microsoft's valuation (it was selling for 61 times trailing earnings as of Wednesday's close) and even tech die-hards say the government's pending antitrust lawsuit against the company makes this call far from certain.

Betting Big on Mister Softee Top domestic equity funds by exposure to Microsoft.
Fund	% of assets in Microsoft
(FSCSX)Fidelity Select Software & Computer	15
(RYOCX)Rydex OTC	14
(POTCX)Potomac OTC Plus	14
(CFLGX)CitiFunds Large Cap Growth	13
(LRPSX)Papp Stock	12
(BFOCX)Berkshire Focus	12
(RYTIX)Rydex Tech	10
(NVLAX)Norwest Advantage Large Co. Growth	10
(DSEFX)Domini Social Equity	9
(DTLGX)Wilshire Target Large Co Growth	9
Source: Morningstar

Plus, if you're considering Microsoft, don't forget that you may already have enough exposure, even if you don't own the stock directly. Before you go out and buy, take a look at your mutual funds' positions. In the narrow go-go growth market of the past few years, many have made Microsoft a top holding. According to Morningstar, more than one-third of all domestic equity funds list it as part of the portfolio.

And if you still don't have a stake in Mister Softee? You're not alone. Landis remembers "way back when" that he missed out on getting in early. "As a young punk analyst, I was lecturing others about why Microsoft had the high ground. Big deal. I'd much rather tell you I bought a hundred shares!"

Cold comfort, perhaps, if you missed this week's move. But when you're kicking yourself, sometimes it helps to know that the pros can play the would'a-should'a-could'a game, too.

This Year's Least Popular

Thanks for asking the obvious when I don't see it! I noted a few weeks ago that running away from the crowd has proven quite profitable in 1999: Morningstar research shows that if you owned a basket of the three least-popular categories of funds (measured by cash outflows) and held it for three years, you'd beat the average equity fund.

Sure enough, as I reported, all of yesterday's ugly ducklings are doing quite well, thank you very much. But what you want to know is: What are the three least-popular categories this year? According to Financial Research Corp., the ones suffering the most redemptions: small-cap, equity income and financial services.

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