Microsoft's Banner Day

The business/financial news programs were going crazy over Microsoft's post-close of market earnings report. In after hours trading, the stock is up roughly 10.5%, after closing at $31.99.


This will probably be front page news tomorrow in the Wall Street Journal, occupying the first or second paragraph in the left "What's News" column.


To give some perspective, I went to Yahoo and downloaded daily adjusted closing prices for Microsoft from 1986 until yesterday, then added the 10.5% gain as today's price. Then I constructed a daily return series from the daily closing prices, sorted by returns in descending order, then selected the top 50 days.


After removing all days prior to 1990, the nearby table of 18 entries resulted. You may click on it to see a larger version.


Prior to after-hours yesterday, which I have labelled as "10/26/2007," the last time MSFT had a top-18 day gain for the last 17 years was May 8, 1002. That's over five years ago.


Before that, there were five days in 2001.



Of course, this is only half of the story. For the other half, I performed the same sort of analysis

for the worst daily returns for MSFT since 1986. That table is nearby this text.

As the table shows, MSFT had an -11.4% daily return as recently as April 28 of last year. A 'greater,' but still negative, daily return of -7.9% was posted nearly four years ago to the day, on October 24, 2003.

Since 1990, of MSFT's 21 worst daily returns, 5 have occurred since the beginning of 2002.

Thus, when you view both extreme daily gains, and losses, for MSFT in the past five calendar years, it's clear that the more frequent result of holding the stock is to experience an outsized loss.

Further, you'd have experienced a total return of -43% from the most extreme negative MSFT returns since the beginning of 2002, vs. +22% from the total of the most extreme positive MSFT returns over the same period.

Why all of this analysis?

Well, just in the brief after-market comments I heard on CNBC this afternoon, it sounded like one quarter's earnings, and the after-market stock price rise, confirms a new era for Microsoft. But the truth is, for the last roughly 1,250 market days, the stock has had only two days ,like this. And many more of similar magnitude, but a negative direction.

Today's performance is more like a rogue wave than a steadily rising tide of excellent peformance.

It's all well and good to be impressed by a 10% gain in the after-market on the strength of one quarterly earnings report from a company that has been moribund for over five years. But, as the accompanying Yahoo five-year price chart shows, you'd have been far better off buying and holding the S&P500 Index for the past five years than you would have been holding MSFT.

Thus, an astute investor wouldn't be in MSFT today to capture the tsunami-like one day 10% gain. Performances like this are near-worthless for anyone but a complete speculator. And certainly not for an investor interested in consistently superior total return performance.