Hiring Apple Computer, Microsoft, and Google to Manage your Money? Not a Good Idea!

For years, Apple Computer (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Google (NASDAQ:GOOG) have been well known among consumers and investors. Among consumers, both companies are known for their innovations that made computers friendly to use.

Apple Computer is farther known for its cool products, the iPods, the iPhones, and the iPads. Google is well known for its search engine and the Android phone. Among investors, the three companies are known for their blockbuster performance.

Now the three companies are well known for their money management management capabilities! Yes, if someone believes what hears from the financial media, investors prefer to purchase the stocks and the debt of these companies, rather than put their money in the bank, or even buy US treasuries. The reasoning is that the three companies have a great deal of cash and outstanding credit ratings, so their money is safer than the mentioned alternatives.

We do believe that this is not a prudent investment strategy; especially at a time insiders are heavy sellers of company stocks. It is further the wrong reason for investing in these companies, as none of them is in the money management business; and may send the wrong message to management that it can enhance shareholder value by engaging in some sort of financial engineering—a risky and destructive activity for technology companies.

We further suggest that investors take a close look at Japanese companies that engaged in such activities in the late-1980s, as the Japanese investors poured money into companies, as an alternative to low money market and treasury yields. Low interest rates further allowed Japanese corporates to get engaged into zeitek, the issuing of equity or corporate debt, not to finance the expansion of their business, but to invest it in higher yielding instruments, engaging in some kind of  “carry-trade.” Investors may also want to take a close look to technology companies that engaged in similar activities in the late 1990s. We do know what happened in both cases.

The bottom line: There are right and wrong reasons to buy the stock of a company. The right reasons are its core capabilities, its sustainable competitive advantage. The wrong reasons are its non-core capabilities, the expectation to engage in financial engineering.

source; forbes.com
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