Can You Find the Real Expert? A Microsoft Example
Recognizing relevant expertise is vital for investment research. Here is a good example using Microsoft and Vista.
I was listening to a podcast interview with a well-known finance professor at a top institution, someone who is also a noted expert on investing. The interviewer asked him questions on three topics:
- The current economy and likely Fed policy;
- The likely outcome of the race for the Democratic Presidential nomination in ’08;
- The market impact of a Democratic victory.
The professor handled questions on all three topics with equal assurance and aplomb. Do you see the problem?
There is an entertaining weekly radio program on NPR called Wait, Wait… Don’t Tell Me! It is a combination news quiz show and trivia contest with a lively panel, a great format, and plenty of laughs. One of the segments is called, "Not My Job." They bring in a celebrity guest and ask questions about something where the guest knows nothing at all. Here is a good example. Former Secretary of State Madeleine Albright (a brilliant woman, and great speaker whom I had the pleasure of hearing in person one time) was questioned about Playboy Magazine and Hugh Hefner.
What we need is a warning signal that comes with investment discussion, something that will tell us that the speaker is really playing the "Not My Job" game.
With this idea in mind, today’s Barron’s provides a first-rate chance to use the principle. One of the big investment themes of the year is Microsoft’s new Vista operating system. It is relevant not only for Microsoft, but for PC makers and equipment suppliers. Barron’s has two relevant stories.
The first, Microsoft’s Game to Lose, carries the summary splash:
Hopes for Vista boosted Microsoft’s shares sharply last year. Now, amid signs consumers may be disappointed, there’s a real risk the stock will fall.
Author Jay Palmer, the "chief gadget reviewer" for Barron’s, is ambivalent about Vista. His article combines an informed review of the software, with speculation about Microsoft stock (where he mentions a possible 20% decline) and the implications for a general upgrade cycle. On this latter point, Palmer quotes a couple of sell-side analysts who share his negative view. He concludes that many users will not upgrade because Vista is not cheap and older PC’s "lack the horsepower" to use it effectively.
A second Barron’s article, Cycling into a Big Year for Tech Stocks, is a Sandra Ward interview with Michael Cahill of Chilton Investment Co. Cahill has a multi-year record of trouncing both the market averages and technology sector averages, despite a difficult market for tech. He makes a number of stock suggestions related to the growth of wireless. (His picks will all pop on Monday — wait for the pullback, if interested). Our focus here is on Vista and the potential effect on other stocks.
Here is Cahill’s observation:
But what will drive this year is Vista …. It is late, but from a timing perspective, they are hitting the PC refresh cycle almost perfectly. The last PC refresh cycle peaked around ’03. So here we are in ’07 and there are 411 million PC’s that are 3 1/2 years old or older that are natural candidates for the Vista upgrade.
Cahill also notes that last year was not strong for PC upgrades.
Both writers are experts, but on different subjects. Do you believe that Cahill does not know the strengths and limitations of Vista, a topic getting saturation coverage for the last few weeks? Who would you expect to have the better read on the upgrade cycle?
Investors and traders share a problem — so much information and so little time. Even those who actively seek varied information get much of it in the form of sound bites.
Those journalists hoping to present a balanced story do so by looking for a representative of any relevant viewpoint. CNBC reports many segments this way. Viewers must be very careful, since those interviewed are frequently asked questions on subjects where they have no special expertise.
No one puts up a sign saying that this is a segment of "Not My Job!"